Executive Summary: Key Legal and Evidentiary Issues

• Whether Gildan Activewear Inc. was obliged to advance defence costs to its ten former directors under section 124 of the Canada Business Corporations Act (CBCA) and a mandatory Indemnification Agreement dated 13 April 2024.
• Interpretation of subsection 124(4) CBCA, including the bilingual (English and French) reading of the court-approval requirement for advancing funds where a corporation sues its own directors.
• The distinction between indemnification (retrospective, decided after trial) and advancement of costs (prospective, contingent funds subject to repayment).
• Application of the presumption that directors acted honestly and in good faith, with the burden on the corporation to prove mala fides at trial.
• Whether Gildan could demand, at the provisional stage, an opportunity to establish a strong prima facie case of bad faith before any advance, as suggested by the Ontario approach in Cytrynbaum.
• Sufficiency of the existing paper record to decide the Advance Costs Application summarily, alongside Gildan's request to stay the proceedings pending a parallel privilege dispute involving Norton Rose.

Facts of the case

Gildan Activewear Inc., a publicly listed apparel manufacturer incorporated under the CBCA and headquartered in Montreal, became entangled in 2024 in a proxy contest widely reported as one of the most expensive of its kind in Canadian and American history, apparently costing the company and the leading dissenting shareholder well over 70 million U.S. dollars. The plaintiffs — Donald C. Berg, Maryse Bertrand, Dhaval Buch, Marcello Caira, Shirley Cunningham, Sharon Driscoll, Charles Herington, Luc Jobin, Craig Leavitt and Anne Martin-Vachon — were all directors of Gildan until their resignation sometime in May 2024. On 7 March 2025, these Former Directors sued Gildan for an estimated 18 million U.S. dollars, plus interest and indemnity, representing the value of Deferred Share Units (DSUs) they allege they are owed for their board service. On 18 November 2025, Gildan filed a Defence and Cross-Application seeking dismissal of that claim and claiming 50 million U.S. dollars against the plaintiffs personally and solidarily, alleging a pattern of reprehensible conduct, including entering into a support agreement in an apparent conflict of interest, initiating a flawed and rushed sale and privatization process, concluding a 200 million Canadian dollar credit facility the company did not apparently need, and approving sweeping last-minute resolutions before resigning. On 23 December 2025, the Former Directors requested that Gildan advance them 750,000 Canadian dollars pursuant to their Indemnification Agreement; Gildan refused on 13 January 2026, arguing the request was premature and subject to court approval under subsection 124(4) CBCA. On 19 March 2026, the Former Directors filed their Application for Advancement of Defence Costs, while Gildan sought a stay of the entire file pending resolution of a parallel privilege dispute concerning some 40,000 documents held by the law firm Norton Rose.

Policy terms and contractual clauses at issue

The dispute turns on the interplay between section 124 CBCA and the Indemnification Agreement signed by each Former Director on 13 April 2024. Subsection 124(2) CBCA provides that a corporation "may" advance moneys to a director for the costs of a proceeding, with an obligation to repay if the director does not fulfil the good-faith conditions of subsection 124(3). Subsection 124(4) requires court approval for indemnification or advancement where the action is brought by or on behalf of the corporation itself. The Indemnification Agreement goes further than the permissive statute: section 2 states that within five business days after receiving a written request, the Corporation "shall advance monies" for costs and expenses reasonably incurred or expected to be incurred in defending any Proceeding, on the understanding that the directors will promptly repay the advances if a final non-appealable judgment determines they did not act honestly and in good faith. The agreement also stipulates that where court approval is required by the CBCA, the obligation to advance is subject to receipt of the court's prior approval. Section 5 of the agreement provides that the directors shall be presumed to have acted honestly and in good faith with a view to the best interests of the Corporation, and section 10 requires Gildan to maintain directors' and officers' insurance for a minimum of six years after service.

The court's reasoning and analysis

Justice Babak Barin postponed Gildan's Stay Application to a later date, finding nothing urgent about it, and rejected Gildan's contention that the advancement request could not proceed before the privilege dispute was resolved. On the merits of the Advance Costs Application, the Court drew a sharp distinction between indemnification, which is retrospective and decided on known facts after trial, and advancement, which is necessarily prospective and functions as an extension of credit repayable if the director is ultimately found not entitled to indemnification. Applying the presumption from the Supreme Court's decision in Blair v. Consolidated Enfield that directors are assumed to act in good faith unless proven otherwise, the Court held that the onus lies on the corporation to demonstrate mala fides at the trial of the indemnification issues — not at the provisional advancement stage. Interpreting subsection 124(4) in both official languages under the modern approach to statutory interpretation, the Court concluded that it is the repayment of advanced moneys, not their advancing, that is conditioned on the good-faith requirements of subsection 124(3), and declined to treat the Ontario Court of Appeal's "strong prima facie case" framework in Cytrynbaum as an automatic entitlement for corporations in every case. The Court found the Indemnification Agreement limpid — a clear contract requiring no interpretation and commanding deference — and held that the determination should be summary in nature on the already existing record, noting Gildan's own admission that most of the conduct underlying its opposition was already described in its Crossclaim. Finally, the Court observed there was no real credit risk to Gildan, since approximately 26 million Canadian dollars in DSUs claimed by the Former Directors remained unpaid and withheld, a sum significantly exceeding any amount Gildan might have to indemnify.

Ruling and outcome

The Court granted, in part, the Former Directors' Application for Advancement of Defence Costs, making them the successful party at this provisional stage. Gildan was ordered to advance the sum of seven hundred and fifty thousand dollars ($750,000) — described in the reasons as Canadian dollars — by no later than 9 July 2026 at 5 p.m., to be held in trust by Langlois Lawyers LLP and drawn against for the costs, charges and expenses of defending the Crossclaim and any related appeal. The Court noted this amount represents only one percent of the 50 million U.S. dollar claim Gildan advanced against the Former Directors and less than three percent of the DSUs Gildan is still withholding. Provisional execution of the judgment was ordered notwithstanding any appeal, given the serious prejudice that further delay would cause, with legal costs to follow. Nothing in the judgment prevents the Former Directors from addressing a future request for additional advances to the Superior Court, and Justice Barin remained seized of the matter.