Ponce: When an atmosphere of trust is betrayed

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The two presidents of a Québec-based insurance group betrayed an atmosphere of trust with the majority shareholders. In Ponce v Société d’investissements Rhéaume ltée, 2023 SCC 25 [Ponce] the Supreme Court of Canada (“SCC”) showcased Québec’s requirement for courts to consider the spirit of contractual business relationships in deciding if a legal remedy is available. The atmosphere of trust was implied by their direct and contractual relationship, and the SCC found this enough to ground a breach of arts. 1375 and 1434 of the Civil Code of Quebec [CCQ].


Groupe Excellence (“GE”) was a successful business enterprise in the insurance industry. Michel Rhéaume and Andre Beaulne together owned 93.1% of the shares of Groupe Excellence and were nearing retirement age at the time relevant to the dispute (para 13). Antoine Ponce and Daniel Riople were appointed by the shareholders as the presidents of GE (para 14). Majority shareholders Mr. Rhéaume and Mr. Beaulne had a direct relationship with the presidents, formalized by a “presidents’ agreement” (“PA”), which set out an incentive structure beyond the normal compensation of the two directors but placed no additional express obligations on them (paras 15-16). The essence of the agreement was to orient the presidents’ towards the common goal of ensuring GE’s success,  with a view to a potential sale (para 16). Among the presidents’ benefits was a right of first refusal if the shareholders ever divested (para 51).

In April 2005, the presidents were informed of another insurance business (“IA”) interested in acquiring GE (para 18). Instead of informing the majority shareholders, the presidents included an exclusivity clause in their confidentiality undertaking agreement with IA to intentionally prevent IA from dealing directly with the majority shareholders (para 18). Mr. Beaulne even asked Mr. Ponce once whether IA might be interested, and Mr. Ponce misled the shareholders by replying that he checked and IA had no interest (para 20).

Between late 2006 and early 2007, both majority shareholders sold their interests to the presidents, who resold them months later to IA for substantial profit (para 21). In December of 2007, the majority shareholders discovered via IA’s press release about the acquisition and filed suit (para 22).


Judicial History

Québec Superior Court, 2018 QCCS 3538

Déziel J of the Québec Superior Court found that the presidents owed duties of honesty, loyalty, prudence and diligence to the company as its directors and that this duty could be extended to the shareholders where they had an independent relationship (para 25). As an alternative ground of liability, the trial judge also found three implied obligations in the PA (1) to maximize the performance of the company for the shareholders’ benefit, profits and value of GE, (2) to report to the shareholders fully and transparently all information that could assist them in assessing GE’s value or make a decision about selling their interests, and (3), not to use the information for personal benefit without the shareholder’s consent (para 26). The trial judge found that the residents concealed IA’s interest intentionally to make a profit themselves, breaching a duty of good faith and loyalty and a duty to inform the shareholders (para 27). On damages, he ordered disgorgement of the profits (para 29).


Quebec Court of Appeal 2021 QCCA 1363

The Quebec Court of Appeal dismissed the presidents’ appeal, finding that the trial judge made a few errors of law but that they made no difference to the result (para 30). The duty of honesty and loyalty in arts. 322 CCQ and 122(1)(a) of the Canada Business Corporations Act RSC 1985, c C-44  cannot extend the duty to the shareholders, but there were other grounds of liability correctly identified by the trial judge, namely the contractual obligation of good faith arising from the PA (para 30). The Court of Appeal relied on Bank of Montreal v Bail Ltée [1992] SCR 554, 93 DLR (4th) 490 [“Bail”] to base the breach of good faith leading to a duty to inform. Since the shareholders had no way to inform themselves and the trial judge found an atmosphere of trust, it was enough to find a breach (para 31).


At the SCC

The SCC examined four arguments for grounding liability and reviewed the remedy. First, they agreed with the presidents and the Court of Appeal that there is no duty to maximalist loyalty in the circumstance, so there was no requirement for the presidents to subordinate their interests to the shareholders, and a duty to inform cannot be based on art. 1309 para 2 (para 44). For those more familiar with the common law, maximalist loyalty is a stronger duty, like a fiduciary duty, but with some differences (paras 42-43). 

The SCC briefly examined an argument advanced by the presidents that the majority shareholders were really taking issue with the pre-contractual stages of their divestment, which was not governed by the PA (para 47). The SCC noted that if the shareholders were arguing this, the scope of the duty to inform at the pre-contractual stage would need to be analyzed, but this was not the argument the shareholders advanced at trial, so it was all theoretical (paras 51-52).

The SCC found the PA included an implied obligation on the presidents based on the agreement’s nature. On a broad level, the PA was for presidents to serve the shareholders’ interests through the company’s success and the eventual sale of their shares in exchange for the incentives aligned with these goals. Without this purpose, the contract is not internally coherent (para 59). A duty of good faith in performance can ground a duty to inform from an implied obligation (para 63). The SCC described this as the duty of good faith in adhering to the contract’s content (para 64). While this argument is enough to ground the liability, the fourth argument assists in establishing the extent of the remedy and regards the good faith manner of performance (paras 63-65).

The presidents did not have the duty to subordinate their interests. However, they did have the duty to consider the interests of the majority shareholders when performing the PA (para 74). The duty of good faith has both prohibitive and proactive dimensions, meaning the duty prohibits acting dishonestly and requires disclosure of information when the three criteria in Bail are met, namely: (1) knowledge of the information by the party owing the obligation, (2) the decisive importance of the relevant information and (3) that the party owed the duty cannot inform themselves (paras 76, 82). The clause in the undertaking of confidentiality was a dishonest act (para 77). IA’s interest was deliberately withheld because of its decisive importance, and the clause reinforced the shareholders’ inability to inform themselves (para 83).

Regarding the remedy, the SCC agreed with the presidents that disgorgement was unavailable without a duty of maximal loyalty (para 93), leaving only compensatory damages. No independent evidence was advanced, but this was not determinative. Since the damages could not be proved due to the presidents’ dishonest act, there arose a rebuttable presumption that the loss of the shareholders was equivalent to the profit of the presidents (para 113). On this basis, the SCC upheld the lower courts’ damages, which were equivalent to disgorgement.



This case showcases Québec civil law’s explicit intent to favour public order in certain ways over autonomy (see para 71). This judgment highlights the advantages of valuing public order and fairness, even between sophisticated parties. The trial judge found an atmosphere of trust that animated the working business relationship between the parties. The presidents betrayed that trust, and no matter what precautions the majority shareholders could have taken through a more self-preservationist contract, the Québec law stepped in. Why should the presidents benefit from scheming to profit at the expense of the shareholders simply because they are not expressly forbidden? Vested trust from the shareholders gave them their success. It’s a reasonable structure for the law to encourage trust by remedying betrayal and scheming. 

This contrasts the common law, where the business acumen of the parties to the dispute would put an onus on them to protect themselves through their contracting, upholding the high place of autonomy in the common law (see Bhasin v Hrynew, 2014 SCC 71 at para 70). The ability to maneuver according to self-interest and clearly define and negotiate the extent of your own limitations is an area that should be treaded upon carefully. However, I believe Ponce highlights the strengths of softening autonomy’s place as the central pillar of contract law. Contracting parties in long-term business relationships should be able to expect the atmosphere of trust they extend to not be betrayed with impunity. If anything, the counterpoint is that the relational, reputational, and market-driven harm from disloyalty is enough without the heavy hand of the law. Yet, those extra-legal consequences mean little to the aggrieved shareholders, who seek recompense, not punishment and deterrence. Time will tell if upholding fairness and public order over autonomy in contracting proves to be the better policy for doing business.

Overall, the judgment was fair, exactly what the CCQ was designed to support. It clarified that a duty of maximal loyalty could not be extended to shareholders and demonstrated the effect a contextual analysis of the business relationship, including finding an atmosphere of trust, can have on the duties implicit in a contract like the PA. It will be interesting to see if and how the reasoning Ponce will be used to inform the common law concepts of good faith in contracts and the duty of honest performance.


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