Director Held Personally Liable

Can directors and officers be held personally responsible for the actions or omissions of their companies? The answer was yes in the case of Shoppers Drug Mart Inc. v 6470360 Canada Inc.

Shoppers Drug Mart (Shoppers) outsourced the management of its utilities payments for its stores across the country to a third party it believed was incorporated. This entity changed names and did incorporate eventually during the time it worked with Shoppers. Throughout the whole time, however, the firm was represented by Michael Wayne Beamish.

Shoppers terminated its contract after its utility providers complained that invoices were not being paid as agreed. Unfortunately, Shoppers had made a payment of $1.3 million to the defaulting company before terminating the contract. They tried to recover this from an account jointly held by the now incorporated entity and Beamish.

The pertinent legislative provision at issue in Shoppers was section 14 of the Canada Business Corporations Act, which provides:

Personal liability

14. (1) Subject to this section, a person who enters into, or purports to enter into, a written contract in the name of or on behalf of a corporation before it comes into existence is personally bound by the contract and is entitled to its benefits.

The entity lost at the Ontario Court of Appeal, because Beamish was the directing mind that caused the misappropriation and misrepresentation by his company and unjustly enriched himself. “He expressly directed and caused the wrongful act,” that resulted in the unjust enrichment, said the Court at paragraph 45 of its written reasons.

Greer Jacks is updating jurisprudence in EverGreen Explanatory Notes, an online research library of assistance to tax and financial professionals in working with their clients.