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What is Litigation - Directors' & Officers' Liability?

Best Corporate litigation lawyers in Canada as ranked by Lexpert

Directors' & Officers' Liability and corporate litigation lawyers comprise the provision of advice and representation, whether by way of counsel, negotiation, judicial proceedings, or various forms of alternative dispute resolution, to corporations, directors and officers, and insurers on directors' and officers' liability, indemnity and insurance options, corporate governance obligations and risk management strategies.

 

Practitioners familiar with the statutory, common law, and ethical obligations as applied to directors and officers are especially called upon to provide advice for significant corporate events such as mergers and acquisitions, corporate restructurings and insolvencies, ongoing business operations, and litigation.

 

When can a director or an officer (D&O) be held personally liable in Canada?

A general rule in corporate law states that a corporate director or officer (D&O) will not be held personally liable for any act of a corporation. This is based on the corporate law principle that a corporation is a juridical entity created by law which is separate from its shareholders, directors, officers, etc. However, there are a few exceptions to this general rule, especially when the corporation or a third-party suffers damages due to that act of the D&O.

 

When a case is filed against a director or an officer because of a crime or breach of any obligation imposed on them, a corporate litigation lawyer can either assist any of the parties – the corporation as the plaintiff, or the director or officer as a defendant. To prevent this from occurring, a corporate litigation lawyer may also provide legal advice to the corporation and their D&O so that they would be properly informed of their duties and the prohibited acts under different laws.

 

Some of the common circumstances for a D&O to become personally liable are the following:

 

Acting in Personal Capacity

A common reason for the personal liability of corporate directors and officers is when they act in their personal capacity or in their personal interests, and not in their official function as a director or officer. Here, the corporation is absolved for the personal acts of its D&O, and the latter will be solely and personally responsible for any damage, injury, or financial obligation resulting from the said act.

 

An example of this is when third parties are left to believe that they are transacting with the director or officer as an individual person, and not as a representative of a corporation. Another circumstance is when a D&O has exceeded their scope of authority granted to them by the corporation. In this light, when an agent of the said D&O has acted beyond the scope given by them to the said agent, the director or officer would be jointly liable for any injury caused by the act of the agent.

 

Breach of Duty of Care

According to Section 112 of the Canada Business Corporations Act, directors and officers have a duty of care to the corporation in the exercise of their powers and in the discharge of their duties. It further states that they must act with honesty and in good faith, with the best interest of the corporation in mind (and not their personal interests), and exercise due diligence that of a prudent person in comparable circumstances.

 

In Section 112(3), it is explicitly stated that no provision on a corporation’s articles and by-laws, or any contract, can exculpate, minimise, or release the directors from liability when there’s a breach in their duty of care imposed by the Act. Hence, a director violating this duty of care will be personally liable for any loss that the corporation may suffer because of such violation.

 

Section 115(3) of the Act also provides for the limitations on the authority of a managing director in the exercise of his/her duties. Also, Section 118(1) and (2) provide for a director’s liability in relation to corporate shares, commissions, and payment of a dividend or indemnity that is in contravention of the standards set by the Act. If such director violates any of these provisions, he/she will be personally liable before the corporation and will be obliged to return or pay the corporation of the amount that it suffered due to that act.

 

Breach of Fiduciary Duty

In connection with the obligation of a director or officer to comply with their duty of care, they are also required to act according to their fiduciary duty to the corporation. This fiduciary duty obligates the D&Os to maintain confidentiality of any sensitive information or matter they have acquired as a result of their position. It also mandates the D&Os to avoid any conflict of interest between their personal interest and that of the corporation.

 

Should there be a possible conflict of interest, the D&O concerned is required to disclose it in a timely manner. Breach of this fiduciary duty puts the D&O to be personally liable for any loss the corporation suffers due to such breach.

 

Breach of Financial Obligations

A director or officer would also be personally liable if – deliberately or negligently – a corporation they serve has not been able to remit to the Canada Revenue Agency (CRA) its mandatory financial obligations, and the CRA is unable to recover said financial obligations from the corporation.

 

These financial obligations are the income taxes, goods and services tax (GST) remittances, and Employment Insurance or the Canada Pension Plan remittances, which includes the failure to deduct from its employees these insurance or pension plan payments.

 

Whe a D&O will want a corporate litigation lawyer

A D&O may check with a corporate litigation lawyer for specific defenses depending on the circumstances of their case. But a common defense for a D&O is the exercise of good faith in the exercise of the duties imposed on them by the corporation and by law.

 

What does directors and officers (D&O) insurance liability cover?

Under Section 124(6) of the Canada Business Corporations Act, a corporation may provide for a D&O insurance for the benefit of its directors or officers, or even for its former directors or officers, to protect said D&Os from any liability arising out of their official conduct as a corporate D&O. This insurance is used when said D&Os are being personally sued either by the corporate employees, its vendors, competitors, or even their co-D&Os.

 

Generally, a D&O insurance will cover trial costs, settlements, and other costs. An exception of this insurance policy are illegal acts conducted by the D&O.

 

When a corporation uses a D&O insurance policy, a corporate litigation lawyer may be consulted to explain such insurance policy, including its subject matter and amounts covered, especially when one is a contract of adhesion.

 

In need of a corporate litigation lawyer, either as a corporation to institute a court against a D&O, or as a D&O who has been held personally liable? Scroll down below to see a list of the best corporate litigation lawyers in Canada who have achieved Lexpert Ranked status.

John Adair
John Adair
Year called to bar: 2006
Toronto, Ontario
Adair Goldblatt Bieber LLP
Rahool Agarwal
Rahool Agarwal
Year called to bar: 2007
Toronto, Ontario
Lax O'Sullivan Lisus Gottlieb LLP
Michael E. Barrack
Michael E. Barrack
Year called to bar: 1982
Toronto, Ontario
Blake, Cassels & Graydon LLP
Sarit E. Batner
Sarit E. Batner
Year called to bar: 2000
Toronto, Ontario
McCarthy Tétrault LLP
Jean G. Bertrand
Jean G. Bertrand
Year called to bar: 1982
Montréal, Québec
Norton Rose Fulbright Canada LLP
Simon Bieber
Simon Bieber
Toronto, Ontario
Adair Goldblatt Bieber LLP
Caroline Biron
Caroline Biron
Year called to bar: 1992
Montréal, Québec
Blake, Cassels & Graydon LLP
David C. Bishop
David C. Bishop
Year called to bar: 1992
Calgary, Alberta
Gowling WLG
Eric Block
Eric Block
Year called to bar: 2003
Toronto, Ontario
Ross Nasseri LLP
Randall W. Block
Randall W. Block
Year called to bar: 1985
Calgary, Alberta
Borden Ladner Gervais LLP (BLG)
Sheila R. Block
Sheila R. Block
Year called to bar: 1974
Toronto, Ontario
Torys LLP
James (Jim) Bunting
James (Jim) Bunting
Year called to bar: 2003
Toronto, Ontario
Tyr LLP
David R. Byers
David R. Byers
Year called to bar: 1983
Toronto, Ontario
Stikeman Elliott LLP
Cara Cameron
Cara Cameron
Year called to bar: 2002
Montréal, Québec
Woods LLP
Nadia Campion
Nadia Campion
Year called to bar: 2006
Toronto, Ontario
Lax O'Sullivan Lisus Gottlieb LLP
David Chernos
David Chernos
Year called to bar: 1993
Toronto, Ontario
Chernos Flaherty Svonkin LLP
Tracey M. Cohen
Tracey M. Cohen
Year called to bar: 1993
Vancouver, British Columbia
Fasken Martineau DuMoulin LLP
Marc-André Coulombe
Marc-André Coulombe
Year called to bar: 1993
Montréal, Québec
Stikeman Elliott LLP
Tom Curry
Tom Curry
Year called to bar: 1986
Toronto, Ontario
Lenczner Slaght
Alan L.W. D'Silva
Alan L.W. D'Silva
Year called to bar: 1989
Toronto, Ontario
Stikeman Elliott LLP
James W.E. Doris
James W.E. Doris
Year called to bar: 1992
Toronto, Ontario
Tyr LLP
John Fabello
John Fabello
Year called to bar: 1994
Toronto, Ontario
Torys LLP
Matthew Fleming
Matthew Fleming
Year called to bar: 2003
Toronto, Ontario
Dentons Canada LLP
François Fontaine
François Fontaine
Year called to bar: 1985
Montréal, Québec
Norton Rose Fulbright Canada LLP
Linda L. Fuerst
Linda L. Fuerst
Year called to bar: 1983
Toronto, Ontario
Norton Rose Fulbright Canada LLP
Mark A. Gelowitz
Mark A. Gelowitz
Year called to bar: 1987
Toronto, Ontario
Osler, Hoskin & Harcourt LLP
Carolena Gordon
Carolena Gordon
Year called to bar: 1992
Montréal, Québec
Clyde & Co Canada LLP
Matthew P. Gottlieb
Matthew P. Gottlieb
Year called to bar: 1991
Toronto, Ontario
Lax O'Sullivan Lisus Gottlieb LLP
Brian J. Gover
Brian J. Gover
Year called to bar: 1983
Toronto, Ontario
Stockwoods LLP
Andrew D. Gray
Andrew D. Gray
Year called to bar: 2002
Toronto, Ontario
Torys LLP
Peter Griffin
Peter Griffin
Year called to bar: 1980
Toronto, Ontario
Lenczner Slaght
David A. Hausman
David A. Hausman
Year called to bar: 1991
Toronto, Ontario
Fasken Martineau DuMoulin LLP
Peter F.C. Howard
Peter F.C. Howard
Year called to bar: 1982
Toronto, Ontario
Stikeman Elliott LLP
Clarke Hunter
Clarke Hunter
Year called to bar: 1981
Calgary, Alberta
Norton Rose Fulbright Canada LLP
Monique Jilesen
Monique Jilesen
Year called to bar: 2000
Toronto, Ontario
Lenczner Slaght
Eliot N. Kolers
Eliot N. Kolers
Year called to bar: 1996
Toronto, Ontario
Stikeman Elliott LLP
Paul H. Le Vay
Paul H. Le Vay
Year called to bar: 1988
Toronto, Ontario
Stockwoods LLP
Eli S. Lederman
Eli S. Lederman
Year called to bar: 2002
Toronto, Ontario
Lenczner Slaght
André Legrand
André Legrand
Year called to bar: 1986
Montréal, Québec
Norton Rose Fulbright Canada LLP
Jeffrey S. Leon
Jeffrey S. Leon
Year called to bar: 1979
Toronto, Ontario
Bennett Jones LLP
Jonathan C. Lisus
Jonathan C. Lisus
Year called to bar: 1992
Toronto, Ontario
Lax O'Sullivan Lisus Gottlieb LLP
Alan H. Mark
Alan H. Mark
Year called to bar: 1982
Toronto, Ontario
Goodmans LLP
J. Kenneth McEwan
J. Kenneth McEwan
Year called to bar: 1987
Vancouver, British Columbia
McEwan Partners
Douglas C. Mitchell
Douglas C. Mitchell
Year called to bar: 1989
Montréal, Québec
IMK s.e.n.c.r.l./LLP
John I.S. Nicholl
John I.S. Nicholl
Year called to bar: 1980
Montréal, Québec
Clyde & Co Canada LLP
Chris G. Paliare
Chris G. Paliare
Year called to bar: 1973
Toronto, Ontario
Paliare Roland Rosenberg Rothstein LLP
Orestes Pasparakis
Orestes Pasparakis
Year called to bar: 1995
Toronto, Ontario
Norton Rose Fulbright Canada LLP
Linda M. Plumpton
Linda M. Plumpton
Year called to bar: 1996
Toronto, Ontario
Torys LLP
Mason Poplaw
Mason Poplaw
Year called to bar: 1987
Montréal, Québec
McCarthy Tétrault LLP
Guy J. Pratte
Guy J. Pratte
Year called to bar: 1984
Ottawa, Ontario
Borden Ladner Gervais LLP (BLG)
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