Canada: Directors Beware: The Ontario Court Of Appeal Reminds Directors That They Are Personally Liable For The Tortious Conduct They Engage In On Behalf Of The Corporation, Even If Carried Out In The Best Interests Of The Corporation
In Meridian Credit Union Limited v Baig, 2016
ONCA 150 the Ontario Court of Appeal confirms that directors can be
held personally responsible for their tortious conduct, even if
that conduct is directed in a bona fide manner to the best
interests of the corporation.
The defendant, Ahmed Baig ("Baig"), negotiated the
purchase of a building from a court-appointed receiver for $6.2M
but failed to disclose to the receiver the intended plan to re-sell
the property for $9M to Yellowstone Property Consultants Corp. Both
Baig and his lawyer sought to prevent the receiver from discovering
the re-sale since the $2.8M difference would jeopardize court
approval of the sale. The plaintiff, Meridian Credit Union Limited
("Meridian"), later discovered the re-sale scheme.
Meridian was a creditor who had not recovered the full amount owing
to it in the receivership proceeding. As such, the receiver
assigned its cause of action against Baig to Meridian who then
commenced an action against Baig.
The Court of Appeal upheld the motion judge's decision to
both dismiss Baig's summary judgment motion of the action and
find him liable for fraudulent misrepresentation. Justice LaForme,
writing for the Court, established that there was sufficient
evidence to prove all four elements of a claim for civil fraud.
Notably, the Court commented that while Baig did not have an
obligation to disclose the re-sale, he did have an obligation to
correct the receiver's misimpression that Yellowstone was
incorporated by Baig for the purposes of closing the transaction.
The Court indicated that "silence and half-truths" can
amount to a misrepresentation.
On appeal, Baig attempted to argue that he should not be
personally liable since he was protected by the corporate veil.
This position was rejected by the Court. Justice LaForme explained
that Baig made the fraudulent representations in his personal
capacity, supported by the following facts:
the corporation incorporated by Baig
never took title to the building;
all relevant documentation was
executed by Baig in his personal capacity and without reference to
his corporation or office therein; and
the lawyer assisting Baig with the
transaction was counsel to Baig personally, not the corporation. As
such, it was held that the corporate veil had no application in
Nevertheless, the Court chose to add that it is well-established
in Canadian jurisprudence that officers and directors of
corporations are responsible for their tortious conduct –
except for the tort of inducing breach of contract – even if
carried out in the best interests of the corporation. The exception
for inducing breach of contract stems from the English case of
Said v Butt,  3 KB 497 which was adopted by
the Ontario Court of Appeal in ADGA Systems International
Ltd v Valcom Ltd (1999), 43 OR (3d) 101. The
exception is justified on the basis that officers and directors
should be permitted to terminate contracts that are no longer in
the best interests of the corporation, without having to fear the
threat of personal liability.
In all, the Court's commentary regarding the personal
liability of directors for their tortious conduct should serve as a
caution — even if directors are acting in their corporate
capacity and in the best interests of the corporation, the
corporate veil will not operate to shield directors from personal
liability for their tortious conduct.
Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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