Canada: The Need For A Legal Ground To Stand On: A Shareholders Class Action Is Dismissed At The Authorization Stage For Failure To Meet Article 1003 B) C.P.C. (Groupe d'action d'investisseurs dans Biosyntech c. Tsang, 2015 QCCS 3265)

In the spring of 2010, BioSyntech, a start-up biotechnology company, developing a cartilage-repair product, BST-Car Gel, filed a Notice of Intention to make a proposal under the Bankruptcy and Insolvency Act. In the subsequent bankruptcy proceedings, the intellectual property relating to the BST-Car Gel was sold. Vincent Blais, a former shareholder of BioSyntech, filed a motion for authorization to bring a class action on behalf of shareholders and security holders against BioSyntech's former directors (the "Defendants") for allegedly causing the company's "avoidable" bankruptcy by failing notably to bring down the company's burn rate and to undertake the necessary measures to secure the financing needed to complete a pivotal clinical trial (the "Motion"). According to the Motion, Defendants breached their duty of care under section 122(1) of the Canadian Business Corporations Act (CBCA), and under articles 322 and 1457 of the Quebec Civil Code. On June 30, 2015, in Groupe d'action d'investisseurs dans Biosyntech c. Tsang, (2015 QCCS 3265), the Honorable Stephen Hamilton of the Quebec Superior Court refused to grant authorization, ruling that the former shareholders of BioSyntech notably lacked the legal standing to bring said class action as the alleged faults of the directors would have been against the company and not the shareholders such that the shareholders would have allegedly suffered indirect damages1. Such damages are not recoverable under Québec civil law.

[153] The shareholders cannot, in law, recover the loss of share value from the directors, even if the directors were negligent. As a result, the class action proposed by the Petitioner cannot succeed. The Petitioner has failed to demonstrate a prima facie right of action against the Respondents pursuant to Article 1003(b) CCP.

Although, the Court acknowledged that the range of parties to whom directors owed a duty of care had arguably been expanded by the Supreme Court of Canada's decisions in Peoples2 and BCE3 to include both creditors and other stakeholders – including shareholders, Justice Hamilton, after reviewing the relevant jurisprudence and doctrine, came to the conclusion that:

[135] With respect to the right of action of the shareholders [under the CBCA] against the directors, the better view appears to be that the shareholders do now have a right of action against the directors.

However, Justice Hamilton emphasized the requirement that the damages claimed by the shareholders in the corporate context must be direct and distinct from those suffered by the company itself.

[140] Damages that are indirect or "par ricochet" are not generally recoverable in extra-contractual liability. As Jean-Louis Baudouin explains:

Comme on le sait, la jurisprudence respecte le critère direct du dommage édicté par le législateur. Le problème de déterminer ce que constitue un dommage « direct » est complexe et, là encore, il serait présomptueux de vouloir généraliser. Toutefois, une tendance se dégage. Les tribunaux ne reconnaissent pas le préjudice qui puise sa source immédiate non dans la faute elle-même, mais dans un autre préjudice déjà causé par la faute. En d'autres termes, est indirect le dommage issu du dommage, le dommage par ricochet, le dommage au « second degré ». (Emphasis added)

As is well known, case law respects the direct injury criteria established by the legislator. The problem of determining what constitutes a "direct" damage is complex and, again , it would be presumptuous to generalize. However, a trend is emerging. The courts do not recognize the prejudice that does not find its source in the fault itself, but rather in another prejudice that has already be caused by the fault. In other words , the damage is indirect when it is resulting from another damage, a damage "par richochet", a "second degree" damage. [Our translation]

[141] The application of this principle in the corporate law context is clear. When the directors cause damage to the corporation, shareholders cannot claim against directors for the resulting loss of share value because this loss is an indirect result of the injury directly caused to the corporation. [...]

In the case of BioSyntech, the shareholders were essentially claiming for a loss in share value, which arose from an alleged "injury" caused to BioSyntech itself. As the Court pointed out: "In those circumstances, the recourse belongs to the corporation and not to the shareholders. If the corporation sues, the shareholders will benefit directly from any recovery. If the corporation fails to pursue its recourse, the shareholders can bring a derivative action in the name of the corporation. If the corporation is bankrupt, the trustee in bankruptcy can bring the action. If the trustee fails to act, the creditors can take the proceedings..."and "If the shareholders are allowed to sue directly for damages of this nature, they effectively jump the queue and recover amounts which should have gone to the creditors."4

In addition to the above, the decision is an important one on two accounts. First, the Superior Court did proceed to a meticulous examination of the allegations of fact and the evidence filed by both parties under the guidance of the Supreme Court of Canada's teachings in Infineon5 and Vivendi6. Therefore, although the test for meeting the "arguable case" test of article 1003 b) C.p.c. is not onerous according to the Supreme Court, bare allegations of facts without supporting evidence will not be sufficient to meet the criteria. Moreover, the Court did distinguish between the 4 allegations of fault brought forth by Petitioner and did proceed to a rigorous analysis of the allegations of facts and the evidence that was filed in support of these allegations of fault. Hence, the filtering mechanism that is the authorization stage does involve a meticulous, rigorous and methodical analysis and appreciation of the allegations of facts and the evidence by the Court.

Second, Justice Hamilton did decide a question of pure law, i.e. the legal standing of the shareholders in light of the allegations of facts and the evidence filed in support of same, by referring to the decisions of the Québec Court of appeal in Trudel c. Banque Toronto-Dominion, 2007 QCCA 413 and Fortier c. Meubles Léon ltée, 2014 QCCA 195. The Superior Court underlined that it had the obligation to decide such legal questions:

"[55] However, the Respondents also advance legal arguments, namely that the directors do not owe the duty under Section 122(1)(b) CBCA to the shareholders, and that the loss claimed by the shareholders is only indirectly caused by the acts of directors and cannot be recovered. The Court will assume that the facts alleged by the Petitioner underlying those legal issues have been proven, and the Court is in just as good a position at the authorization stage as it will be after the trial to deal with those issues. In these circumstances, the Court is required to decide the legal issues."

Therefore, Justice Hamilton follows the guidance of the Quebec Court of appeal and confirms that questions of law must be decided at the authorization stage, and should not be postponed to the merits of the case.


[1] On July 30, 2015, Petitioner has filed an inscription on appeal of the decision of the Honorable Justice Hamilton.

[2] Peoples Department Stores Inc. (Trustee of) v. Wise, 2004 SCC 68 (CanLII), [2004] 3 S.C.R. 461

[3] BCE Inc. v. 1976 Debentureholders, [2008] 3 SCR 560

[4] Groupe d'action d'investisseurs dans Biosyntech c. Tsang, (2015 QCCS 3265), para. 141.

[5] Infineon Technologies AG v. Option Consommateurs, 2013 SCC 59 (CanLII), [2013] 3 S.C.R. 600

[6] Vivendi Canada Inc. v. Dell'Aniello, 2014 SCC 1 (CanLII), [2014] 1 S.C.R. 3

To view original article, please click here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions