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Piercing the Corporate Veil! Your Directors may not be Immune.


It is commonly considered that “Directors of a Corporation” should generally be protected under the “Corporate Veil” and should not be held personally liable for acts committed on the job, since they are NOT acting in their “individual capacity” while performing job duties. However, this may not be true when a “Director”, or for that matter, any employee committed a “tortuous act” causing personal injury or property damage (This may not be the case though for pure economic losses).


Piercing the Corporate Veil


In Hogarth v. Rocky Mountain Slate Inc., 2013, the Court of Appeal of Alberta discussed personal liability of corporate directors at length. It was stated:


The law respecting the liability of directors and officers for torts committed while conducting corporate business is not entirely consistent. Some cases approach the problem from the perspective of the “duty of care”, whereas others approach it from the perspective of “piercing the corporate veil”. Some exceptions to general liability for tort have been recognized, and others have been rejected, without any clear principle emerging.


In Nielsen (Estate of) v. Epton, 2006, Costigan J.A. writing for the Court of Appeal of Alberta confirmed:


It is settled law that a corporate director may have a personal duty of care and may be liable for acts that are in themselves tortious.


The competing policy objectives of tort law and corporate law will have to be taken into consideration to determine whether a Director of a Corporation could be held personally liable for his/her acts committed while acting as an agent/employee/director for the corporation.


In Scotia McLeod Inc. v. Peoples Jewellers Ltd., 1995, Finlayson J.A presiding for the Court of Appeal for Ontario reiterated what was said in Lennard's Carrying Co. v. Asiatic Petroleum Co.,  1915, by Viscount Haldane for the House of Lords:


. . . a corporation is an abstraction. It has no mind of its own any more than it has a body of its own; its active and directing will must consequently be sought in the person of somebody who for some purposes may be called an agent, but who is really the directing mind and will of the corporation, the very ego and centre of the personality of the corporation. . . . 


In a recent decision by the Court of Appeal of Alberta, the principles relating to the personal liability of a Director were discussed at length.


In Hall v Stewart, 2019, the Court of Appeal of Alberta allowed an appeal from the appellants (plaintiffs), setting aside the summary dismissal of a subrogated action brought on by the Workers’ Compensation Board, to recoup claim monies paid to the injured claimants.


The Facts of the case are as under:


Background

The respondent (defendant, Stewart) was a director of a sub-contracted construction company retained by the primary contractor, to perform work in the construction of a new home. Part of the scope of the sub-contractor’s work included installation of a temporary staircase into the basement of the new home. The claimants were employees of another sub-contractor at the construction site. The staircase was installed under the supervision of and the actual participation of the respondent”.


Accident

The temporary staircase installed by the defendant’s (respondent’s) company collapsed underneath the claimants, causing them injuries.


Workers’ Compensation Board – The Subrogated Action

Both the Respondent’s company and the Claimants’ employer were “employers” under the Workers’ Compensation Act, RSA 2000, c. W-15. Thus, the claimants could not sue the Respondent’s company for damages relating to their personal injuries and were compensated by the Workers’ Compensation Board, who in turn brought a subrogated action against the Respondent to recover the claims paid.


Positions

Appellants:

The Director should be held personally liable since the staircase was negligently installed. And thus, though the board cannot go after the company, they should be allowed to recover from the Director.


Respondent:

Any negligent act committed was committed as part of the duties, as an employee, and not as an officer of the corporation, and thus, immunity should be available.


Summary Dismissal

Action against the respondent was dismissed, holding:


“The corporation was immune from suit, and the respondent was doing the exact act the corporation was retained to do. There was no overt or extraordinary act that took the respondent’s conduct beyond the scope of his employment.” 


Basis of Appeal

The appellants argue that the case should not have been summarily dismissed as there is a question of material fact that needs to be decided: Whether the staircase was negligently installed.


Issue

Can a corporate officer such as the respondent be held personally liable for his tortuous conduct, while acting as a representative of his corporation, causing personal injuries?


Analysis

The protection afforded under the Workers’ Compensation Act, RSA 2000, c. W-15 does NOT apply to “directors” of “employers”, unless they purchase additional coverage from the Board. Thus, an injured claimant can sue the director for his/her personal injuries, though may not be able to sue the corporation due to some statutory (or other) immunity. Hence, the board has rights of recovery against the Director, provided it is proven that the staircase was negligently installed. For these reasons, had the respondent himself been injured on the job, he would not have been entitled to statutory compensation from the Board and would be able to sue any other workers or employers for injury, who may be proven to be negligent in causing the injuries.


Both the respondent and his company owed a duty of care in making sure the installation of the staircase is done properly without posing any dangers to those working on site. In absence of the immunity provided by the Workers’ Compensation Act, even the company would have been potentially liable under tort, a scenario of concurrent liability with the respondent. It is immaterial whether the work was done as a “Director” or whether it was carried out as an “Employee”. There is no doubt that the work was performed as a job duty and cannot be considered “independent” of the business of the corporation. The deciding factor considered by the court though was the fact that the incident caused personal injures.  The Court allowing the appeal, stated, under various paragraphs:


Anyone who agrees to install a staircase clearly owes a duty of care to those who are likely to use that staircase. Although the respondent’s tort was not at all “independent” of the corporation DWS Construction, the modern corporation was not designed to be a method of providing immunity to corporate actors for this sort of loss. There are strong public policy reasons to ensure that physically injured plaintiffs are compensated. Claims for pure economic loss raise different issues.


It follows that the respondent cannot escape personal liability for any personal injuries he caused to the claimants as a result of a negligent act, even though his involvement in the construction of the staircase was a part of the business of the corporation


There is a remaining dispute as to whether the staircase was negligently installed, whether that negligence caused it to fail, and if the claimants’ injuries resulted from that negligence. Those issues will have to be explored at trial or in another dispute resolution forum.


Takeaways

The law regarding personal liability for a Director of a Corporation is not settled and is a bit elusive. However, if it could be proven that the Director’s conduct is tortuous, and a causal link could be established between the conduct and the injuries, the director may then be held personally liable for the incident, when, inter alia:


  • The corporation is immune from a lawsuit, being the case in this claim; and

  • The claim involves personal injury or property damage and is not merely a pure economic loss in the balance sheets. 

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