The Alberta Court of Appeal recently decided that a corporate director who was found to have made negligent misstatements about the management team's knowledge, expertise and competence to operate its business, was not personally liable in tort.
In Hogarth v. Rocky Mountain Slate Inc. et al, 2013 ABCA 57, the Alberta Court of Appeal overturned the decision of the trial judge, thereby absolving one of six corporate directors (and the only one to appeal the trial decision) of personal liability for negligent misrepresentation.
Simonson was Chairman of the Board of Directors of Rocky Mountain Slate Inc. He was also a shareholder and an officer of Rocky Mountain Slate Inc.
For the purpose of raising capital for the company, a limited partnership was created. Among the material prepared was a business plan, an "Investment Opportunity" document, and a "Future Oriented Financial Information for the Three Years ended December 31, 2001, 2002 and 2003."
When the investment failed, various investors commenced an action to recover their investments alleging negligent misrepresentation against the officers and the corporate entities involved. The promotional materials contained what were said to be negligent misrepresentations about the capabilities, competence and knowledge of the management team, including Simonson.
The trial judge agreed that the promotional material contained materially inaccurate misrepresentations about the management team's knowledge, expertise and competence to operate the business. She also found that the individual Defendants, including Simonson, were personally liable, citing evidence of standalone tortious conduct. It appears that the trial judge was persuaded to find personal liability on Simonson by virtue of his status as an officer and an investor (shareholder) of the company.
However, the Alberta Court of Appeal, while upholding the finding of negligent misrepresentation, found that Simonson's position as a director, officer and investor in the company, did not give him a sufficiently separate identity from the corporation so as to ground personal liability in tort.
The Court of Appeal relied upon its own decision in Blacklaws v. Morrow, 2000 ABCA 175 in acknowledging that:
... There will be circumstances in which the actions of a shareholder, officer, director or employee of a corporation may give rise to personal liability in tort despite the fact that the impugned acts were once performed during the course of their duties to the corporation.
The Court of Appeal went on to qualify this general statement, again borrowing from its earlier reasoning in Blacklaws v. Morrow, supra:
Where those actions are themselves tortious or exhibit a separate identity or interest from that of the corporation so as to make the act or conduct complained of their own, they may well attract personal liability.
The Court of Appeal found that the statements made in the promotional material of Rocky Mountain Slate Inc. were for the purpose of raising funds for the corporation and for its benefit, not for the individual benefit of Simonson and others. Simply being an officer of the company and having a shareholding or other financial interest in a corporation does not automatically translate into a separate interest for the purpose of establishing personal liability.
Moreover, the Court of Appeal recognized that the trial judge did not identify any aspect of Simonson's conduct in making the impugned negligent misrepresentations independent from his activity as a corporate officer.
Therefore, the Court of Appeal found that the claim against Simonson for personal liability in tort failed and Simonson's appeal was allowed.
This case is illustrative of the need to distinguish between corporate and personal liability when suing directors and officers of a corporation in tort. At least in the Province of Alberta, Courts are reluctant to pierce the corporate veil to find personal liability on corporate directors and officers for what can be considered to be corporate wrongdoing.
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