Personal liability

2017 SCMR 1851 SUPREME-COURT-OF-CANADA Judicial Precedent

Corporate DirectorsOppressive conductPersonal liabilityPrinciplesCriteria governing imposition of personal liability on corporate Directors

When a complainant moved the court for holding a corporate Director personally liable for his oppressive conduct, the court had broad discretion to "make any interim or final order it thinks fit" [section 241(3) of the Canada Business Corporations Act, R.S.C. 1985, c. C-44]

Said remedy was an equitable remedy that sought to ensure fairness and it gave the court broad, equitable jurisdiction to enforce not just what was legal but what was fair

Courts considering claims for oppression should engage in fact-specific, contextual inquiries looking at business realities, not merely narrow legalities

Determining the personal liability of Director [under section 241(3)] required a two-pronged approach

First, the oppressive conduct (of the director) must be properly attributable to the Director because of his or her implication in the oppression; and second, the imposition of personal liability must be fit in all the circumstances

Four general principles should guide courts in fashioning a fit remedy against the oppressive conduct of the Director [under S. 241(3)]

First, the oppression remedy request must in itself be a fair way of dealing with the situation

Holding a Director personally liable may be fair where he or she had derived a personal benefit in the form of either an immediate financial advantage or increased control of the corporation, breached a personal duty or misused corporate power, or where a remedy against the corporation would unduly prejudice other security holders

Said factors merely represented indicia of fairness

Presence of a personal benefit and bad faith remained hallmarks of conduct attracting personal liability, but like the other indicia, they did not constitute necessary conditions

Fairness principle was ultimately unamenable to formulaic exposition and must be assessed in light of all the circumstances of a particular case

Second, any order should go no further than necessary to rectify the oppression

Third, any order may serve only to vindicate the reasonable expectations of security holders, creditors, Directors or officers in their capacity as corporate stakeholders

Oppression remedy protected only those expectations derived from an individual's status as a security holder, creditor, Director or officer, and it should not be used for purely tactical purposes

In particular, a complainant should not be permitted to jump the creditors' queue by seeking relief against a Director personally

Fourth, a court should consider the general corporate law context in exercising its remedial discretion

Director's liability could not be a surrogate for other forms of statutory or common law relief, particularly where it may be more fitting in the circumstances.