Canada: Directors And Officers Liability Decision May Have Chilling Effect On Lawyers

Last Updated: January 28 2013
Article by Don McGarvey, Q.C.

It is common for lawyers, whether for altruistic, humanitarian, community service or even business promotion reasons, to sit on Boards of Directors. When lawyers do so, it is typical to rely upon provincial and federal legislation (Canadian Business Corporation Act and the provincial equivalents) to allow those lawyers to be indemnified and defended at the cost of the company or its insurer, in the event they are sued in their capacity as directors (presuming that their actions were in good faith and in the best interests of the company).

It is also typical for law firms, where their lawyers sit on Boards and may be exposed to potential liability, to ensure that directors and officers liability insurance coverage to a certain limit has been placed by the company in question and that the company provides an indemnity in the event that coverage is not available.

Even with these safeguards in place, a recent and somewhat startling decision of the Ontario Superior Court of Justice may send a chill through law firms across Canada where their lawyers sit on a Board of Directors for a company that is also a client of the law firm.

In Allen v. Aspen Group Resources Corporation, 2012 ONSC 3498, the action arose from the takeover by Aspen Group Resources Corporation of Endeavour Resources Inc.

It was alleged by the Plaintiff that WeirFoulds was negligent in the preparation of the Takeover Bid Circular and failed to ensure that it disclosed material facts. The lawyer that prepared the Circular, Egan, was a partner at WeirFoulds. Egan also sat as a director of Aspen Group Resources Corporation. Not only did he prepare the Circular but he also signed it certifying that the Circular contained no untrue statement of fact and did not omit any material fact or contain any misrepresentation likely to affect the value of the securities that were the subject of the takeover bid offer.

The Plaintiff claimed that WeirFoulds was liable for Egan's negligence in the preparation of the Circular and also that it breached Section 131 of the Securities Act, R.S.O. 1990 c. S.5.

Keeping in mind that this was a motion for summary judgment by WeirFoulds to have the claim against it dismissed, it nonetheless will give a number of law firms pause when they consider having one of their lawyers sit on a Board of Directors of a client corporation.

While WeirFoulds suggested that the law firm and its lawyer, Egan, owed no duty to the shareholders of Endeavour, the Court found that the factors of expectation, representation and reliance all existed to some degree and the shareholders of Endeavour could reasonably have expected that a lawyer who prepared and signed the Circular would ensure that it was accurate. This was especially so given the express representation by Egan on the Circular.

While WeirFoulds, among other things, argued that to allow an action such as this to proceed would set a "dangerous precedent" because it would unduly expand the scope of liability under the Securities Act, the Court found that:

... imposing liability on those who employ a director or who are in partnership with the director, is in keeping with the purpose of the Securities Act. It promotes the goals of compensation, loss distribution and risk management. Any other result would be unfair.

The Court also found that:

Egan sat on the Board of Aspen because Aspen was a client of WeirFoulds. He was acting in the ordinary course of business and as a partner of WeirFoulds when he sat at Aspen's boardroom table and when he signed the Circular. WeirFoulds billed for his work and the proceeds of those billings were shared by the partnership. To hold that WeirFoulds is insulated from his liability would be inconsistent with the Partnerships Act and would not promote the objectives of the Securities Act.

The Court also refused to accept the submission that this decision would deter lawyers from acting as directors. In fact, it felt the contrary would be true in the sense that it would share risk and responsibility between the lawyer and his or her law firm. It would also provide greater protection for the public, result in higher standards and controls, and put the risk on the party most able to control and insure it, being the law firm. This seems consistent with one of the policy reasons for the principle of vicarious liability.

Certainly, lawyers and law firms can, in fact, insulate itself if they choose to do so, through the purchase of outside directors liability coverage. Nothing would seem to preclude this from having been done by Egan or WeirFoulds in the circumstances but this case is nevertheless a cautionary tale going forward for law firms who have lawyers who sit on Boards of Directors of client corporations.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Don McGarvey, Q.C.
Events from this Firm
2 Nov 2016, Webinar, Calgary, Canada

“Problem Employees” come in a variety of forms but seem to take up the majority of an employer’s time. Each form brings its own challenges and each must be addressed in a different way.

30 Nov 2016, Webinar, Calgary, Canada

Legal issues surrounding contaminated sites affects landowners, developers, realtors, as well as consultants and contractors working on the front lines. This webinar will provide a practical review of how the legislation is actually being used, recent court decisions, challenges with brownfield developments, and future changes.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.