Director's Liability For Corporate Negligence

Plaintiffs often cast the net broadly to capture every party with assets or insurance capable of satisfying a potential judgment. Directors are often named as defendants in claims related to the negligence of the companies they oversee.

Under Canadian law, there are certain circumstances in which a director will become personally liable, but such liability usually arises from statute, such as liability for six months of employee wages, remittance of payroll deductions to tax authorities, and safety and environmental legislation.

Directors will not usually be subject to personal liability for torts committed by their companies. The foundational principles of the separate corporate identity inform any discussion of personal liability of directors. The Alberta Court of Appeal has stressed the importance of those principles:1

The point is that separate corporate existence, and the resulting limited liability, is not a loophole, a technicality, or a mischievous stratagem; it is an essential tool of social and economic policy.

Merely occupying a role as officer, director or manager does not create personal liability. Directors have been found to have no liability in the following circumstances:

for alleged misrepresentations by the company to investors; for alleged negligent operation of an oil well servicing;2 for alleged defamatory comments made by a newspaper chain;3 for allegedly allowing employees to be exposed to asbestos during building renovations;4 or for alleged violence perpetrated against locals by a company operating in a developing country.5 There are circumstances, however, in which a director may attract personal liability for tortious conduct of the corporation:6

Where those actions are themselves tortious or exhibit a separate identity or interest from that of the corporation so as to make the act or conduct complained of their own, they may well attract personal liability.

Liability has been found where a director has abused his role for personal gain.7 Directors have also been found liable when they influenced a tender process by promising jobs to employees of a competitor.8 Applications to summarily strike claims against directors have not succeeded where directors allegedly knew that sales agents were promoting a real estate investment contrary to securities legislation,9 or where directors allegedly concealed contamination migrating to an adjacent property.10 All of these cases have an undercurrent of illegality and fraud.

...