Whatever happened to... can. Aero v. O'Malley.

• Author: Bowal, Peter

Ethics disqualifies a director or senior officer from usurping for himself or diverting to another person or company with whom or with which he is associated a maturing business opportunity which his company is actively pursuing; he is also precluded from so acting even after his resignation... --Can. Aero v. O'Malley, [1974] SCR 592 Introduction

Beginning in 1948, Canadian Aero Service Ltd (Canaero) was in the business of aerial topographical mapping and geophysical exploration.

Most of the work in the geophysical survey industry at the time related to mapping developing countries, and most of these projects were funded by government grants and loans from wealthy nations such as Canada and the United States. In July 1966 Guyana convinced the Canadian government to fund a survey project in Guyana.

Thomas M. O'Malley was the President and CEO; J. M. (George) Zarzycki was the widely respected chief engineer, Vice-President and director; and James E. Wells was a lawyer, former employee and long term director at Canaero. The three friends cooked up a plan to quit Canaero and start a new competing business. In August 1966 they formed a new company, Terra Surveys Ltd. O'Malley became the President of Terra; Zarzycki was named Executive Vice-President. Wells became a major shareholder. Terra would pursue profitable business opportunities for these three men.

Canaero and Terra were two of the five companies later invited to submit a bid for the Guyana project. Eventually, the Terra proposal was selected because it "covered the operation in much greater detail than might be normally expected."

When Canaero discovered what O'Malley and Zarzycki had done, it sued both of them, along with Wells, for damages related to the value of the contracts lost to Terra and the Guyana project in particular. Was there any legal duty owed by O'Malley, Zarzycki, or Wells to Canaero, especially after they had resigned?

The legislation under which Canaero incorporated in 1948 had no provision that mandated directors' legal duty of care to their company. A director was anyone in the company performing a management role, regardless of the title used. O'Malley and Zarzycki had not been elected to their positions of President and Vice-President by a board of directors or shareholders. They had to obtain approval from Canaero's parent company for travel expenditures over $100 and had no power to dismiss senior personnel.

The trial judge dismissed the claim on the basis that...