Executive Summary: Key Legal and Evidentiary Issues

• The application concerns whether Gilbert Trudeau and R.C.M. Modulaire Inc. qualify as complainants under the Corporations Act for purposes of a derivative action.

• Section 369(2) required Mr. Trudeau to satisfy a three-part test covering reasonable notice, good faith, and the interests of the corporation.

• Good faith was assessed using a subjective and objective framework drawn from prior case law across multiple provinces.
   
• Evidence of substantial payments made by GAPCO to True North Property Management Limited featured prominently in the interests-of-the-corporation analysis.
   
• Contested affidavit evidence addressed whether the application was motivated by self-interest rather than a genuine belief in the claim's merit.
   
• Ultimately, the court had to determine whether leave should be granted to pursue a derivative action for breach of fiduciary duty.
   

Facts of the case

Gilbert Trudeau and R.C.M. Modulaire Inc. applied to the Supreme Court of Newfoundland and Labrador for leave to bring a derivative action on behalf of GAPCO Enterprises Limited against two of GAPCO's directors, Peter Cornick and Alec Snow [also referred to elsewhere in the decision as Eric Snow, at para. 2, and Darren Snow, at para. 15], for breach of fiduciary duty. GAPCO owns two apartment buildings in Labrador City and has three shareholders — Snow, Cornick, and Trudeau — each holding a one-third interest under a unanimous shareholders' agreement. Trudeau and R.C.M. alleged that GAPCO made undocumented and unauthorized payments to True North Property Management Limited in the form of management fees and interest on inter-company loans, and claimed these payments amounted to self-dealing because True North is allegedly owned by Snow and Cornick. On October 31, 2023, Trudeau and R.C.M. notified GAPCO's directors that they would seek leave for a derivative action if no action was commenced against Cornick, Snow, and True North; almost ten months passed with no action taken before the application was filed and served.

Policy and legislative provisions at issue

The application turned on the Corporations Act, R.S.N.L. 1990, c. C-36. Section 368(b) defines "complainant" to include beneficial owners and directors, and the court had to determine whether Trudeau and R.C.M. met that definition. Section 369(2) sets out a three-part test for leave to commence a derivative action, requiring the applicant to show reasonable notice to the directors, good faith, and that the action appears to be in the interests of the corporation. The unanimous shareholders' agreement was also central to the analysis: it states that "[a]ll decisions with regards to GAPCO shall require the unanimous vote of the three shareholders in order to be duly adopted," and it restricts GAPCO's directors from making "any decision other than an administrative decision taken in the ordinary course of the business" without unanimous shareholder approval.

Reasoning and analysis

The court found that Trudeau, as a director of GAPCO, met the statutory definition of "complainant" under section 368(b), but that R.C.M. did not, since the shareholders' agreement ambiguously described one shareholder as a corporation "represented by its President," Trudeau, without naming R.C.M. itself as a shareholder. Turning to the section 369(2) test, the Respondents conceded that reasonable notice had been given. On good faith, the court applied a subjective/objective approach, examining whether Trudeau believed the claim had merit and whether an arguable case existed that was neither frivolous nor vexatious. Neither affidavit before the court — from Trudeau or from Snow [identified in this passage as Darren Snow, a director of GAPCO] — showed evidence of an ulterior motive, and the court noted that a shareholder's potential benefit from a successful action does not itself establish bad faith. The court also found the objective component satisfied, pointing to GAPCO's Unaudited Financial Statements showing payments to True North, the unanimous-vote and administrative-decision clauses in the shareholders' agreement, and Trudeau's unanswered requests for supporting documentation. On the interests-of-the-corporation requirement, the court rejected the Respondents' argument that litigation costs would outweigh any recovery as speculative, and noted that the question of whether Snow and Cornick acted in GAPCO's interests was itself the issue to be tried. The court highlighted that GAPCO paid $3,023,639 in interest on the alleged inter-company loans and advances between 2020 and 2023, and carried a listed liability of $11,160,248 as of September 30, 2023, concluding these amounts made the litigation worthwhile even if only a portion were recovered.

Ruling and overall outcome

Justice Mellor granted Gilbert Trudeau leave under section 369 of the Corporations Act to commence a derivative action on behalf of GAPCO Enterprises Limited against Alec Snow [also called Eric Snow and Darren Snow elsewhere in the decision], Peter Cornick, and True North Property Management Limited for breach of fiduciary duty, having found that Trudeau satisfied all three requirements of reasonable notice, good faith, and the interests of the corporation. R.C.M. Modulaire Inc. was not found to be a "complainant" and so did not obtain standing in its own right. Trudeau was awarded his costs in accordance with Column 3 of the Scale of Costs in the Appendix of Rule 55 of the Rules of the Supreme Court, 1986, S.N.L. 1986, c. 42, Sch. D; the decision does not state a specific dollar figure for these costs.