In the case of XY, LLC v. Zhu, 2013 BCCA 352¸ the B.C.
Court of Appeal has confirmed that employees of a company can be
personally liable for the breach of a technology license agreement
by their employer. The Court held that employees who continue to
carry out low level tasks even after they become aware of their
employer's dishonest conduct may avoid liability; employees
who knowingly assist their employer in carrying out a fraud
can be personally liable for the damages caused by the
The plaintiff XY, LLC was formed to bring to market technology
that makes it possible to separate X and Y chromosomes in bovine
sperm in order to allow sex-selection in calves. In 2004, XY
licensed this technology to JingJing Genetic Inc. (JingJing).
JingJing was to use the technology to export calf embryos produced
in Canada to cattle farms located in China. Under the terms of the
license agreement, JingJing was to pay XY a royalty based on the
number of embryos and amount of sperm it sold in China.
The trial judge found JingJing had violated the terms of the
license agreement in different ways, including by materially
underreporting the number of embryos it produced and sold in China
as well as selling products in breach of the agreement.
The plaintiff sued not only JingJing but also two of its
employees, Ms. Jin Tang and Ms. Selen Zhou, as well as Mr. Jesse
Zhu, the controlling mind of JingJing. By the time of trial,
JingJing had declared bankruptcy, so the plaintiff's claims
against these personal defendants were important for the
plaintiff's ability to recover damages for its losses from
JingJing's breach of the license agreement.
The trial judge found the personal defendants liable for the
deceit committed by JingJing and also liable for the tort of
conspiracy, resulting in their personal liability to the plaintiff
for $8.5 million in damages.
The B.C. Court of Appeal upheld the finding of the trial judge
that the personal defendants had participated in the fraud
committed by the company, including through their roles in the
preparation of false records and reports sent to the plaintiff and
in the misuse of the confidential information provided under the
license agreement. The Court held that they "not only acted in
concert to carry out unlawful acts that would injure the
plaintiff" but "assisted in planning how best to go about
The personal defendants argued that their status as employees of
JingJing, and the fact that they were acting within the course of
their employment with JingJing, shielded them from liability for
their conduct. The Court of Appeal rejected this argument and
confirmed that it is the law in Canada that as long as employees of
a corporation have been proven to have acted in a way that
constitutes a tort they can be held personally liable
notwithstanding that they were acting in the best interests, and on
the instructions, of their employer.
The two personal defendants who were merely employees of
JingJing (as distinct from Mr. Jesse Zhu who was found to be the
controlling mind of the company) also argued that they were
"only following orders" and "could not be expected
to refuse to carry out the scheme apparently devised by their
boss". The Court of Appeal held that although there can be
circumstances where an employee should not be held responsible for
the fraudulent conduct of his or her employer, the conduct of the
employees in this case rendered them personally responsible.
The Court stated:
[...] the employee who simply carries
on the job she has always done, notwithstanding that her typing or
bookkeeping may assist in a fraud, should not without more be
regarded as a fraudster (or conspirator) herself...Here, however,
the trial judge found that Ms. Zhou and Ms. Tang went beyond mere
bookkeeping or 'typing' lab reports at Mr. Zhu's
instructions Both defendants actively assisted in devising
how best to deceive XY. (at paras. 79-80)
This case therefore confirms that technology rights-holders may
have a number of potential targets from whom they can seek to
recover losses they suffer due to a misuse of their technology in
circumstances where the company they contracted with is without
assets. It is also a cautionary tale for employees who find
themselves caught up in a dishonest scheme conceived by their
Software license agreements generally require the customer to pay fees for the software license and related services, which fees are usually based upon the duration of the license and the manner in which the customer is allowed to use the software, together with applicable taxes and withholdings.
In less than nine months, on July 1, 2017, persons affected by a contravention of Canada's anti-spam legislation will be able to invoke a private right of action to sue for compensation and potentially substantial statutory damages.
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