The recent appeal by Bloorston Farms Ltd. (“Bloorston”) of the ruling by the Superior Court of Justice in favour of Sang Thi Tran (“Sang”) was dismissed by the Ontario Court of Appeal, which assessed the well-established rule in Foss v. Harbottle (1843), 67 E.R. 189 (U.K.H.L.), its limitations and its rationale.
Sang claimed for the diminution 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, as a result of the lease for the restaurant premises being terminated by Bloorston (which lease was held by Sang as tenant and Bloorston as landlord). Bloorston contended that the rule in Foss v. Harbottle prevents shareholders from suing for a loss in the value of their shares.
The rule in Foss v. Harbottle stipulates that a shareholder of a corporation does not have a personal cause of action for a wrong done to the corporation. The rationale for the rule is, firstly, the corporation is a separate legal entity. The corporation, not its shareholders, is liable for the corporation’s acts and omissions, and likewise, acquires causes of action when wrongs are committed against it. Secondly, the rule avoids a multiplicity of actions. Without the rule, a shareholder would be able to sue on the basis that a wrong done to the corporation, which caused it harm, indirectly harmed the shareholder.