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:

  1. the corporation incorporated by Baig never took title to the building;
  2. all relevant documentation was executed by Baig in his personal capacity and without reference to his corporation or office therein; and
  3. 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 this case.

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, [1920] 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.