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Shareholder class action against D&Os results in dismissal at the authorization stage confirmed by the Québec Court of Appeal


November 30, 2016


Pharmaceutical / Bio Life Sciences




On 30 November, 2016 the Court of Appeal of Québec delivered a decision where it upheld a dismissal of a motion to institute a class action at the authorization stage by the Superior Court of Québec (Groupe d'action d'investisseurs dans Biosyntech c. Tsang, 2016 QCCA 1923 (CanLII))

At the Superior Court, the Petitioner sought to institute a class action against eight directors and officers of BioSyntech on behalf of shareholders of the company, which manufactures medical devices. BioSyntech had filed for bankruptcy in 2010 following the global financial crisis when it failed to access sufficient capital to bring its start-up plans to fruition. The Petitioner alleged that the bankruptcy was avoidable and was due to a pattern of faults by the directors and officers in relation to the company's financial condition. It was alleged that, as a result of these faults, the shareholders were deprived of the possibility to share in the potential profits of BioSyntech and so were entitled to compensatory damages. The Superior Court rejected this argument, siding with the Respondents and concluded that any damages allegedly suffered by the shareholders would have been suffered by the company and only indirectly by its shareholders.
On appeal, the Petitioners argued that the Superior Court had interpreted the leading cases of Peoples v. Wise and BCE Inc. v. 1976 Debentureholders too restrictively. In rejecting this argument, the Court of Appeal also sided with the Respondents and concluded that irrespective of any duty of care owed by the directors and officers to the shareholders, the proposed class action had no chance of success because the damages suffered by the Petitioner were only indirect. Importantly, the Court of Appeal also confirmed that it is still possible for a class action in Québec to be dismissed at the authorization stage, despite recent Supreme Court of Canada and Québec Court of Appeal rulings that set the threshold to authorize class actions at a low level.
The McCarthy Tétrault team advising BioSyntech's directors and officers was led by Jean Lortie and included Jean-Phillipe Mathieu, Justine-Emmanuelle Dahl and Philippe Bélanger.


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