In Hogarth v Rocky Mountain Slate Inc.,
2013 ABCA 57 the Court of Appeal re-affirmed the test for
directors' liability in the context of tortious action by a
director in a limited liability corporate context.
Roger Simonson had been a director, officer and shareholder of
Rocky Mountain Slate Inc. (RMS) during a period when that limited
liability partnership was actively soliciting investment. He had
helped to prepare some promotional materials that contained
misrepresentations about the technical expertise contained in
RMS' management team and misleading predictions about the
potential success of RMS' operations. At trial, the Court found
that Simonson's acts constituted tortious conduct that made him
personally liable for the misrepresentations in the promotional
The majority of the Court of Appeal reversed this decision on
narrow grounds, following its previous decision in Blacklaws v.
Morrow, 2000 ABCA 175, leave refused  1 SCR vii. In
that case, the Court had acknowledged that in some circumstances
the actions of a director, officer, shareholder or employee done in
the course of their corporate duties may result in personal
liability. However, this personal liability is confined to actions
that are tortious in themselves, or that "exhibit a separate
identity or interest from that of the corporation so as to make the
act or conduct complained of their own."
On this basis alone, Justices O'Brien and Rowbotham
concluded that personal liability was not established against Mr.
Simonson. They noted that being an officer and shareholder in the
corporation was insufficient to establish Mr. Simonson as having a
separate identity from his corporate role in connection with the
impugned conduct. The trial judge had not identified any of Mr.
Simonson's actions as being independent from his corporate
role. Thus he could not be held personally liable.
In a concurring judgment, Slatter JA gave much more expansive
Importantly, he noted that the trial judge appeared to have
applied a standard of "universal concurrent liability"
and characterized this as a misstatement of law resulting in an
elimination of the corporate veil. Justice Slatter went on to
highlight the important public policy basis of limited liability
corporations. He found that there is ambiguity in the case law as
to whether the question of directors' liability should be
approached from the perspective of the directors' duty of care
or as a question of "piercing the corporate veil".
In the event, Justice Slatter adopted the duty of care approach.
He determined that it was impossible to determine on the facts in
this case which representations were made by RMS and which were
made by Mr. Simonson, and that a reasonable person would not expect
that the authors of the promotional materials were in fact
attaching persona legal responsibility to such representations. The
policy consideration of maintaining the integrity of limited
liability business structures weighed heavily in favour of Slatter
JA's ultimate determination that there was no personal
liability in these circumstances.
While Justice Slatter would also have denied liability on the
basis of a lack of causation, the majority of the Court repudiated
his formulation of the "but for" test in this case.
Unfortunately, neither the majority nor the concurring opinion
in this case laid down any definable rule to distinguish an
independent tort from a corporate tort. The majority simply noted
that there was no statement from the trial judge identifying any of
Mr. Simonson's actions as being independent. Justice
Slatter's concurring reasons contend that promotional materials
prepared in the corporation's name and not identifying any
particular contributors should be presumed not to create personal
liability, as raising capital is one of the limited liability
corporation's primary functions.
As a result, the law remains vague with respect to what
constitutes an independent tortious act by a director, officer,
employee or shareholder. The answer to this question is likely to
turn on the individual facts of each case.
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.
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All corporations should be concerned with conduct risk in 2017. The threat of loss, both financial and reputational, due to the actions of one, or many, managers or employees is greater than it has ever been.
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