On November 10, 2023, the B.C. Court of Appeal issued its judgment in an alleged mortgage fraud matter in which the appellants challenged the lower court’s findings relating to the indoor management rule as codified in s. 146 of the British Columbia Business Corporations Act and similar provisions across Canada. The appellants argued that the respondent, 069813 B.C. Ltd. (“813”), could not rely on the indoor management rule because it “ought to have known” about a fraud internal to the appellant company, which is an exception to the rule. The Court of Appeal dismissed the appeal, and upheld the Supreme Court of British Columbia’s decision in favour of 813, holding that 813 was entitled to the protection of the indoor management rule. In its Reasons for Judgment, the Court clarified the circumstances in which a person ought to know of impropriety or irregularity within a company’s internal policies and procedures based on their relationship with the company. The Court noted that issues on appeal were of broader import to corporate law/governance and did not appear to be have been expressly considered by the courts before the Court of Appeal’s decision.
Cassels represented 069813 B.C. Ltd.