Archive for January, 2010

This is the second in a series of posts on this subject.  The full version of the article was published by the Institute of Corporate Directors in its Journal and and as a web resource.

The mood prevailing upon enactment of Canada’s contemporary corporate law was to make directors more, rather than less, accountable in the exercise of the duty of care.

The Canada Business Corporations Act (CBCA) was based in large part upon the recommendations of a 1971 Dickerson Report which proposed a duty of care that was stricter than that then prevailing duty:
Recent experience has demonstrated how low the prevailing legal standard of care for directors is, and we have sought to raise it significantly.

An enhanced duty of care was ultimately enshrined in the CBCA.

Several objections to the Delaware model have been made by observers. An initial object to limited director liability, as raised in the Dickerson report, was that it gives rise to “a steady supply of marginally competent people” to serve as directors. However, despite over twenty years of legal history in the U.S., I have seen no facts to support this opinion.

Read the rest of this entry »

Tags: director liability

This post is an excerpt from Shafik’s article  published by Vancouver Bar Association’s The Advocate. 

Since the Supreme Court of Canada’s landmark decision in Wallace v. United Grain Growers Ltd., trial and appellate courts in Canada have followed, distinguished, explained, mentioned and cited the decision in over 650 cases.

The breadth of employer conduct that attracts bad faith dismissal damages can be substantial.

It is arguable that in some wrongful dismissal cases, the courts are opting for a more expedient solution of awarding Wallace damages than going through the exercise of determining whether there is actually a basis for mental distress, aggravated or punitive damages. It would seem that because the concept of bad faith dismissal is more flexible and expansive in scope than the remedies of mental distress, aggravated and punitive damages and because of the much lower threshold for claiming Wallace damages, the courts are more inclined to award the Wallace damages and summarily dismiss claims for mental distress, aggravated and punitive damages. Moreover, once the courts award Wallace damages they appear to be content in not awarding other damages such as mental distress, aggravated or punitive damages. Since in most cases the same evidence is proffered by employees to advance claims for mental distress, aggravated and punitive damages and the theory of the courts is that awarding under any one of the latter heads of damages amounts to double recovery.

Read the rest of this entry »

Tags: Wallace

This is the first in a series of posts on this subject.  The full version of the article was published by the Institute of Corporate Directors in its Journal and and as a web resource.

It is in the interests of society to foster a business environment in which corporations can achieve their primary objectives of raising capital, expanding earnings and improving profitability.  To that end, it is necessary to attract directors who are highly competent and motivated to take risks in the best interests of the corporation.

Directors are subject to a number of duties that may give rise to personal liability. These include:

• the fiduciary duty to act honestly, in good faith and without self-interest;
• the duty to refrain from making misrepresentations in documents which may be distributed to investors in the primary or secondary markets;
• the duty to refrain from insider trading or tipping;
• the duty to ensure that the corporation receive proper consideration for shares issued;
• the duty to ensure that employees and government entities receive statutorily prescribed payments;
• the duty to refrain from conduct that is oppressive or unfairly prejudicial to others; and
• the duty to exercise care, diligence and skill in directing the affairs of the corporation.

Persons agreeing to assume the important role of a director are aware that they must act honestly and loyally, that they must refrain from misconduct, and that there are potential statutory liabilities with prescribed limits.

However, the potential breadth of the Duty of Care is so great that it is very difficult for a director or prospective director to predict or anticipate under what circumstances he or she may be in breach of that duty and thereby subject to personal liability in favour of an aggrieved party. That person may thereby be less inclined to act as a director, and less inclined to take bold, calculated risks if they do accept that role.

In my view, to foster economic activity and encourage job growth, Canadian lawmakers should follow the Delaware lead to permit corporations to regulate, through their charters, the potential liability of their directors for breaches of the duty of care, but not in cases of bad faith, misconduct or other liabilities prescribed by statute.

Tags: director liability