Executive Summary: Key Legal and Evidentiary Issues

• Dispute over former directors’ entitlement to payment of substantial Deferred Share Units (DSUs) under a board compensation plan following a contentious proxy contest and mass board resignation.
• Serious allegations that the former directors breached fiduciary duties by prioritizing their own interests, including through a rushed sale process, new credit facility, and last-minute self-protective resolutions before resigning.
• Contested application by the former directors for advancement of defence costs under individual Indemnification Agreements and section 124 CBCA, including the nature, timing, and evidentiary threshold for such relief.
• Parallel privilege dispute over documents held by Norton Rose LLP, raising questions about who controls solicitor-client privilege (company vs former directors) and how lack of access to those documents affects Gildan’s ability to prosecute its cross-claim.
• Interpretation challenges around key provisions of the Indemnification Agreements and section 124 CBCA (indemnification vs advance of costs, presumption of good faith, burden of proof, and court approval in derivative-type proceedings).
• Case management issues under article 158 C.C.P., particularly whether proceedings (or parts of them) should be stayed, and how to sequence and structure hearings on the Costs Application and other preliminary requests.

Background and corporate context

Gildan Activewear Inc. is a large, publicly listed apparel manufacturer incorporated under the Canada Business Corporations Act (CBCA) and headquartered in Montreal. It produces activewear, underwear and hosiery products for major brands and distributors worldwide and reported approximately USD 3.27 billion in revenue in 2024, with a market capitalization exceeding USD 8 billion at that time. The company was co-founded in 1984 by Glenn Chamandy and his brother, with Glenn serving as CEO from 2004 onward. In 2021, with his cooperation, the board began a multi-year succession process to prepare for an orderly transition from his leadership. In 2024, Gildan became embroiled in a highly publicized and exceptionally costly proxy contest, reportedly one of the most expensive in Canadian and U.S. history. By the company’s and the dissident shareholder’s own accounts, the proxy battle cost each side tens of millions of U.S. dollars, with an aggregate spend of well over USD 70 million. The corporate governance tension arising from that battle forms the backdrop to this litigation.

The former directors and their DSU compensation claims

The plaintiffs, Donald C. Berg (former board chair) and nine other individuals, all served as directors of Gildan until their resignation around May 2024. They commenced proceedings on 7 March 2025 by Originating Application seeking nearly USD 18 million plus interest and indemnity, representing the alleged value of their Deferred Share Units (DSUs). These DSUs were granted to them as part of their compensation for board service under a 17-page “Deferred Share Units Plan for the Members of the Board of Directors,” including six schedules, originally adopted on 3 August 2004 and effective from the company’s first fiscal quarter of 2005. The plaintiffs take the position that these DSUs were properly earned through their duties as directors and that they remain entitled to payment notwithstanding the later governance controversy. They amended their Originating Application on 14 November 2025, refining or expanding their pleading, but the essence remains a claim to realize the substantial DSU value they say is contractually owed under the plan.

Gildan’s defence and cross-application against the former directors

On 18 November 2025, Gildan filed a detailed Defence and Cross-Application. It seeks dismissal of the plaintiffs’ Originating Application and in turn claims against the former directors personally and solidarily for USD 50 million, sauf à parfaire, plus legal interest and indemnity. Gildan alleges that the plaintiffs engaged in a pattern of reprehensible conduct that disregarded the company’s best interests. The company cites several categories of board decisions as problematic, including entering into a support agreement that allegedly favoured the only shareholder who had responded positively to the CEO’s termination, in an apparent conflict of interest and without adequate regard for Gildan’s interests or governance standards. Gildan also attacks the board’s initiation of what it characterizes as a flawed, prejudicial, and rushed sale and privatization process supposedly lacking commercial justification and undervaluing the company. The company further challenges the approval of a CAD 200 million credit facility said to have been unnecessary at the time, and a suite of last-minute resolutions shortly before the directors resigned, which reportedly spent tens of millions of corporate dollars to shield the outgoing board and its allies from scrutiny by the incoming board. On this basis, Gildan alleges that the plaintiffs breached their fiduciary duties, prioritized personal gain, and thereby disqualified themselves from any DSU payments they now claim.

The application for advancement of defence costs

Reacting to Gildan’s cross-claim, the plaintiffs filed an Application for advancement of defence costs on 19 March 2026. Framed as a Costs Application, it is based on individual Indemnification Agreements between each plaintiff and Gildan and on section 124 of the CBCA. The plaintiffs seek CAD 750,000 to fund their defence of the allegations in Gildan’s cross-application, characterizing this as necessary for them to “make full answer” and adequately defend themselves. Their position is that this Costs Application should be heard immediately and urgently, in priority to all other issues or applications in the Superior Court proceedings. Gildan opposes that sequencing, arguing that it is not yet in a position to address the plaintiffs’ request and that consideration of advance costs should await resolution of a related privilege dispute in the Commercial Division. The case management judgment focuses heavily on how and when this Costs Application should be heard, and under what legal standard, rather than on the merits of the underlying fiduciary duty and DSU issues.

Related proceedings on privilege and control of documents

Parallel to this civil file, there is a distinct proceeding in the Superior Court’s Commercial Division concerning documents held by Norton Rose LLP, a law firm that previously acted in connection with Gildan’s affairs. In that matter, Gildan seeks a determination of whether solicitor-client privilege over certain documents resides with the former directors (including the plaintiffs here and six additional former directors) or with Gildan itself. Justice Martin Sheehan, who is seized of that Commercial Division case, issued a 19-page decision on 23 March 2026, laying out a roadmap for how to advance the privilege dispute. His decision required Gildan, Norton Rose (represented by its own counsel), and the 16 former directors (represented by separate counsel) to file a timetable addressing the former directors’ own request for advance of costs in that file by 10 April 2026. The timetable has now been presented, and the privilege-related advance-costs question is expected to be heard in the fall of 2026. This parallel context matters because, at the civil case management hearing of 7 April 2026, Gildan argued that it cannot properly prosecute its cross-application without access to the Norton Rose documents and that the civil proceedings should be stayed pending the outcome of the privilege dispute. Notably, this stance contrasts with Gildan’s earlier draft case protocol, in which it indicated that no stay was sought and disclaimed reliance on the privileged documents for its Defence. The apparent shift in position is flagged by the case management judge as a notable feature of the procedural landscape.

Case management notices and shifting positions on a stay

Before Gildan filed its Defence and Cross-Application, both sides had filed case management notices in the civil file. On 14 November 2025, the plaintiffs submitted a “Plaintiffs’ Amended Notice of Case-Management,” seeking, among other measures, to narrow the dispute to the DSU amounts and their conversion date; to have only the former chair, Donald Berg, examined orally (for two hours); to limit the remaining plaintiffs to written examinations; and to confine examinations strictly to matters relevant to the plaintiffs’ DSU claim. Alternatively, they proposed staying the Originating Application until 30 days after the Commercial Division’s determination of the privilege issue, followed by a new case management conference. On 18 November 2025, coinciding with its Defence and Cross-Application, Gildan filed a “Defendant’s Modified Notice of Case Management” proposing dismissal of the plaintiffs’ notice and adoption of a Gildan-drafted case protocol. In that earlier protocol, Gildan explicitly indicated that no stay of proceedings was being sought and expressly downplayed any dependence on the Norton Rose documents, characterizing the privilege fight as driven by the plaintiffs’ unilateral assertion of privilege. By April 2026, however, the roles were almost reversed: before the case management judge, Gildan requested a stay of the civil file pending resolution of the privilege dispute, while the plaintiffs opposed a stay and pressed for an immediate hearing of the Costs Application. This dynamic underscores the strategic interplay between the civil claims, the cross-claim, and the privilege case.

The court’s directions on the Costs Application and procedural roadmap

In the decision at issue, the Superior Court (Civil Division) does not resolve any substantive claims or even decide the Costs Application. Instead, applying article 158 of the Code of Civil Procedure, the judge issues a series of case management measures designed to clarify and structure the next steps. First, the Court schedules a further case management hearing for 25 May 2026 at 9:00 a.m. The purpose is to address all issues relating to the Costs Application, including whether it should be heard at this stage, whether the earlier case management notices remain relevant, and whether any additional preliminary applications should be heard before or alongside the Costs Application. The judge emphasizes that the parties must be fully prepared at that hearing, bringing all information and documentation necessary to allow the Court, if it so decides, to rule on the Costs Application on the existing record in a fair, proportionate and economical manner. Second, the parties are ordered to file written submissions of no more than 25 pages each, in both printed and electronic form, by noon on 19 May 2026. They must also provide bound, indexed volumes of authorities and case law and exchange all submissions and supporting material with each other. These directions are designed to ensure that the Court is comprehensively briefed on the complex corporate, statutory and contractual questions raised by the Costs Application.

Key legal questions posed by the court

The judgment then sets out an extensive, though expressly non-exhaustive, list of questions for the parties to address in their submissions. Among the most important are whether the plaintiffs’ Costs Application must precede all other applications in the civil proceedings, and what significance, if any, should be attributed to Justice Sheehan’s 23 March 2026 Commercial Division decision. The Court asks the parties to clarify the true nature of the Costs Application—whether it is essentially provisional (akin to an interlocutory or interim measure) or whether it necessarily engages the merits of the indemnification rights. It also queries what evidentiary standard should apply: is a prima facie case sufficient, or is a stronger threshold required before the Court should order an advance of costs under section 124 CBCA? Additional questions concern the burden of proof, the drafting history and purpose of the Indemnification Agreements, and the particular significance of sections 1(b)(i), 1(c), 2, 3, 4 and 5 of those agreements. The judge also seeks detailed submissions on section 124 CBCA: its legislative history, policy rationale, relevant academic commentary, domestic and international case law, and the distinction between “indemnification” and “advance of costs” under subsections (1) and (2). The Court explicitly points to the statutory repayment obligation in subsection 124(2)—requiring the individual to repay advanced moneys if the conditions in subsection (3) are not ultimately met—and asks whether that structure implies that advances are inherently provisional and should not require a full merits analysis at the time they are ordered. Conversely, it asks whether the requirement of court approval in subsection 124(4) for derivative-style actions applies to advances of costs as well as indemnification, and how that interacts with the other subsections to avoid interpretive conflict. Finally, the judge calls for submissions on subsection 124(5) (the statutory “right to indemnity” in certain circumstances), its relationship to the other subsections, and how the Court should determine the quantum of any advance on costs, including the appropriate evidentiary basis for such a calculation.

Outcome and current status of the proceedings

At this stage, the judgment does not decide the underlying DSU claims, the fiduciary duty allegations, or the plaintiffs’ request for advance defence costs. It is a case management decision that clarifies the procedural path forward, orders further submissions, and sets a hearing date to examine whether and how the Costs Application should be determined, potentially on the existing record. There is no finding of liability, no dismissal of any substantive claim, and no order granting or denying the requested CAD 750,000 advance of costs. Accordingly, there is currently no “successful party” in the sense of a final or even interim monetary determination on the merits of the civil dispute or the Costs Application. No damages, costs, or defence-funding amounts are awarded in favour of either the plaintiffs or Gildan in this decision, and the total monetary award or costs ordered in favour of any party cannot yet be determined from this case management ruling alone.