The Alberta Court of Appeal has recently released a decision that adds much needed clarity to when an officer or director of a corporation will be personally liable for torts committed by a corporation. In Hogarth v. Rocky Mountain Slate Inc., 2013 ABCA 57, the Court was tasked with determining whether certain promotional materials created to solicit investments constituted negligent misrepresentations, and to what extent the individual directors who assisted in the preparation of those promotional materials could be personally liable for their actions.
At trial, the Alberta Court of Queen’s Bench held that the statements made in the promotional materials were negligent misrepresentations and where an individual director or officer was involved in communicating the misrepresentations, the ‘corporate veil’ could not shield that individual from liability.
After a lengthy review of the common law in the area of the personal liability for directors and officers, the Court of Appeal reversed the trial Judge’s decision, finding that the lower court failed to properly consider the economic and societal importance of the notion of a limited liability corporation. Specifically, the Court of Appeal determined that there are important policy reasons for the use of limited liability corporations, namely the ability for individuals to raise capital and take entrepreneurial risks without fear of legal repercussions if the business venture is ultimately unsuccessful. For an individual director or officer to be found liable for a tortious act they have committed in the course of their duties, the act must be such that it was made an on independent, individual basis. Where it is clear that the director or officer was clearly acting on behalf of the corporation, and all relevant parties understood that the director or officer was acting on behalf of the corporation, and not in their personal capacity, generally no personal liability will be found.