The Ontario Superior Court of Justice has ruled that a lawsuit by investors who lost money in the collapse of the First Leaside Group can go ahead against the directors of corporations that served as general partners to limited partnerships (LPs) that were part of First Leaside’s complex investment structure.

The investors, who lost their money when First Leaside went into bankruptcy in 2012 amid financial distress, are suing the directors claiming negligence, breach of fiduciary and statutory duties, and that the directors’ actions were oppressive.

Nine of the 16 directors who are defendants in the case sought to have the actions against them dismissed on the basis that directors of general partnerships do not owe a duty of care to investors in LPs; that they didn’t make any representations to the plaintiffs; and that the claims are not viable and should be dismissed without a trial.

The court ruled that the case can go ahead — at least in part. Although it acknowledged that the directors wouldn’t typically owe any duties to the LP investors, it found that the “question of what might reasonably be expected of these directors concerning the financial stewardship of these corporations, as it affects the plaintiffs, is a triable issue.”

However, the court dismissed the plaintiffs’ claim regarding oppression, noting that “each of these directors suffered investment losses similar to those alleged by the plaintiffs.”

The court also dismissed the claim that the decision to put the First Leaside Group into bankruptcy harmed the plaintiffs’ interests, noting that this “was entirely a business judgment decision which in these circumstances deserves deference.”

In addition, the court rejected the arguments from two directors who claimed that the cases against them should be dismissed because they didn’t participate in any of the directors’ meetings.

“I was not provided with any authority to support the proposition that absenteeism from board meetings, short of a written resignation, absolves a director from responsibilities owed to the corporation or to others by virtue of having been appointed to that position,” says Justice Wolf Tausendfreund in the decision dismissing that argument.

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