This is a different issue from the oppression remedy discussed above.
The Canada Business Corporations Act contains a provision, which although considered in the above decision of UPM-Kymmene Corp v UPM-Kymmene Miramichi Inc, was not the propelling rationale of the decision.
The statute mandates the disclosure of interest of a conflicted officer or director, approval by the board and in addition, the need for a fair and reasonable contract following such disclosure. The contract may be challenged, even when approved by the board. The Ontario Act contains a similar provision in section 132(7).
Section 120(7) of the federal statute states as follows:
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(7) A contract or transaction for which disclosure is required under subsection (1) is not invalid, and the director or officer is not accountable to the corporation or its shareholders for any profit realized from the contract or transaction, because of the director's or officer's interest in the contract or transaction or because the director was present or was counted to determine whether a quorum existed at the meeting of directors or committee of directors that considered the contract or transaction, if
(a) disclosure of the interest was made in accordance with subsections (1) to (6);
(b) the directors approved the contract or transaction; and
(c) the contract or transaction was reasonable and fair to the corporation when it was approved.
This provision was considered in Catalyst Fund v Hollinger, a decision of C. Campbell J. of the Ontario Superior Court. It was then confirmed, as the statute states, that the requirements are conjunctive. As to the last hurdle, the court concluded that the subjective belief of the party in conflict is of no moment, where objectively that the contract was not reasonable and the subjective view unreasonable. It was also held that the substance of the contract and the process by which it was made must both satisfy the test of fairness.