“Two presidents of a group of three companies in the insurance industry learned that a major company was interested in acquiring the group. Rather than revealing this to the group’s majority shareholders, the presidents decided to buy the whole of the shareholders’ interests themselves in order to resell them to the company for a substantial profit. Before the resale, the presidents and the purchaser company entered into an undertaking of confidentiality, which prevented the company from dealing directly with the group’s majority shareholders.
Upon learning of the resale, the shareholders filed a motion to institute proceedings for damages in the Superior Court, claiming approximately $24 million as compensation for the gain they would have made through that transaction of which they were deprived. They alleged that the presidents had breached their contractual and legal obligations and their fiduciary obligations, and in particular their obligations to act in good faith, with loyalty and transparency, by failing to inform them of the interest expressed by the purchaser company in acquiring the group. The shareholders argued that, because of the presidents’ unlawful actions, they were entitled to claim the equivalent of the excess profits made by the presidents.
The Superior Court ruled in the shareholders’ favour and ordered the presidents solidarily to pay them $11,884,743, an amount equal to the profits earned by the presidents on the resale. The court found that, under both the Civil Code of Québec and the Canada Business Corporations Act, the presidents, in their capacity as directors, owed duties of honesty, loyalty, prudence and diligence to the group. The trial judge found that these same duties could be extended to the shareholders because of an incentive pay agreement entered into by the shareholders and the presidents (“Presidents’ Agreement”) that governed the parties’ relationship and entailed implied obligations for the presidents. The Court of Appeal affirmed the trial judgment and upheld the remedy awarded by the trial judge. However, it was of the view that the trial judge erred in finding that the duties of honesty and loyalty provided for in the Civil Code of Québec and the Canada Business Corporations Act could be extended to the shareholders. The court held that the presidents’ conduct fell within the three criteria set out in Bank of Montreal v. Bail Ltée,  2 S.C.R. 554, and that the presidents breached the obligation of contractual good faith and the obligation to inform they owed to the shareholders.”
The SCC (6:0) dismissed the appeal.
Justice Kasirer wrote as follows (at paras. 35, 81-82, 85, 105-106, 113, 116-117):
“In light of the parties’ arguments, two main questions shape the debate before this Court:
- A. Did the appellants’ non‑disclosure of the interest expressed by IA in acquiring Groupe Excellence constitute a breach of a contractual or legal obligation to inform owed to the respondents and therefore a civil fault?
- B. If this fault is established, did the courts below err in awarding the respondents a sum representing the profits made by the appellants, either through the disgorgement of profits mechanism or as damages to compensate for the gain of which the respondents were deprived?
A. Did the Appellants’ Non‑Disclosure of the Interest Expressed by IA Constitute a Civil Fault?
In the context of this case, which involves a long‑term business relationship, contractual good faith imposed a proactive duty to inform on the parties through art. 1375 C.C.Q. Disclosure by the appellants of the interest expressed by IA would not have amounted, in this case, to the subordination of their interests to those of the respondents. Conversely, remaining silent about IA’s interest constituted disloyal conduct. Again, we are dealing with a contractual undertaking through which the parties joined forces to achieve a common goal. This is what French authors Malaurie, Aynès and Stoffel‑Munck describe as an [translation] “alliance contract” or “cooperation contract”, under which the parties unite to some degree to pursue a common goal over time (No. 276). Such contracts are better able to accommodate the duties of initiative and cooperation based on good faith than [translation] “exchange contracts”, which are not meant to be long‑lasting (No. 276; see also Grammond, Debruche and Campagnolo, at paras. 49 and 326).
All that remains to be determined is the extent of this duty to inform in the specific context of the business relationship that existed here. For this purpose, I will refer to the landmark decision in Bail. In that case, the Court outlined a general theory regarding the duty to inform arising from the obligation of good faith in contractual matters, which served to determine whether particular information fell within this duty. As the Court of Appeal properly noted, this Court laid down the following three criteria in Bail (at pp. 586‑87): (1) knowledge of the information, whether actual or presumed, by the party owing the obligation to inform; (2) the fact that the information in question is of decisive importance; (3) the fact that it is impossible for the party to whom the duty to inform is owed to inform itself, or that the creditor is legitimately relying on the debtor of the obligation.
In sum, I agree with the Court of Appeal that the interest expressed by IA in acquiring Groupe Excellence satisfies, in the context of the Presidents’ Agreement, each of the three criteria set out in Bail (paras. 87‑91). As a result, the requirements of good faith in the performance of the Agreement imposed a duty on the appellants to inform the shareholders of IA’s interest.
B. Basis for the Remedy and Amount Owed to the Respondents
In sum, I am of the view that disgorgement of profits without regard to injury is not an appropriate remedy in this case. The sanction requested is to compensate for a wrong. The demand is not simply for restitution of profits, much less for disgorgement of profits for a confiscatory or punitive purpose, a remedy that would potentially deviate from the general law of civil liability. It is thus appropriate to assess, on the basis of the respondents’ alternative argument, the quantum of the damages to be awarded to them to compensate for the loss they claim to have suffered.
In Quebec, the law of civil liability is based on the principle of full compensation for injury sustained, often expressed through the phrase restitutio in integrum. Pursuant to this principle, the purpose of damages is to compensate for loss sustained or gain lost as a result of fault. The quantum of such damages must be assessed so as to place the respondents in the position they would have been in but for the appellants’ fault (see arts. 1611 et seq. C.C.Q.).
In accordance with the presumption helpfully identified by Rothman J.A., where a breach of the requirements of good faith prevents the aggrieved party from proving the injury sustained, it should be presumed that the injury is equivalent to the profits made by the party at fault. However, this presumption is rebuttable, as it can be displaced by evidence to the contrary showing that the quantum of damages differs from the amount of the profits (pp. 443‑44, quoting Rainbow Industrial Caterers, at pp. 14‑16).
In this case, the respondents are seeking disgorgement of profits as the “equivalent” of the “serious loss” they claim to have sustained as a result of the appellants’ breach of the requirements of good faith in the performance of the Agreement (motion to institute proceedings, at paras. 1, 47, 57, 57.1 and 58). That injury is equivalent here to the gain lost by the respondents, which is compensable under art. 1611 C.C.Q. Based on the presumption set out in Baxter, it can be assumed that, had it not been for the appellants’ wrongful omission, the respondents would have sold their interests to IA at the same price the appellants did. This was in fact the premise underlying the analysis by the respondents’ experts, which was accepted by the trial judge, as can be seen from his explanations about calculating the value of the lost advantage (see paras. 598 and 615). Consequently, what the appellants describe as “loss of chance” to negotiate ceases to be hypothetical and becomes simply a “loss” for which the respondents must be compensated in the absence of evidence to the contrary (A.F., at paras. 119‑29; R.F., at para. 117). The onus was therefore on the appellants to establish on a balance of probabilities that the respondents would have sold their interests to IA for a price lower than the one obtained by the appellants. The appellants did not discharge this burden. The trial judge accepted the assumption put forward by the respondents’ firm of experts, namely that, “had it not been for the acts alleged against the [appellants], the [respondents] would have received consideration equivalent to what IA paid to acquire the [appellants’] interests in Groupe Excellence rather than the amount they obtained from the [appellants]”. At the hearing in this Court, the appellants did not show that this finding of fact, which is entitled to deference, was tainted by a palpable and overriding error (Housen, at para. 10; Grenier v. Grenier, 2011 QCCA 964, at para. 45 (CanLII); M.H. v. Axa Assurances inc., 2009 QCCA 2358,  R.R.A. 15, at para. 19). Therefore, because the presumption in Baxter has not been rebutted, the damages owed to the respondents are equivalent to the difference between the sale price received by the appellants on the resale to IA and the price received by the respondents on the initial sale to the appellants.”