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Fraud - Direct Personal Liability of Corporate Officers. CHU de Québec-Université Laval v. Tree of Knowledge International Corp. ['piercing the veil' versus direct tort liability of corporate officers]
In CHU de Québec-Université Laval v. Tree of Knowledge International Corp. (Ont CA, 2026) the Ontario Court of Appeal dismissed an appeal, here brought against a finding that the appellant was "personally liable for civil fraud".
Here the court considered direct 'personal liability for civil fraud' (and generally for torts), which is different from 'piercing the corporate veil':2. Did the trial judge err in finding Mr. Caridi personally liable for civil fraud?
[82] As reviewed above, while the trial judge found that this was not an appropriate case for piercing the corporate veil, he found Mr. Caridi personally liable for CHU’s loss because his conduct was “tortious in itself” and because he exhibited a “separate identity or interest” from that of TOKI. Mr. Caridi submits that the trial judge erred in law in making these findings. He submits that the trial judge erred because the personal liability of directors for conduct that is “tortious in itself”, is not meant to extend to claims for economic loss. He also argues that the profit-sharing agreement between Mr. Caridi and TOKI cannot form the basis for a finding that his conduct exhibited a separate identity or interest. Mr. Caridi further urges the court to clarify the circumstances under which officers and directors of corporations can be personally liable for the tortious conduct of a corporation, arguing that the law in this area is unclear.
[83] I would dismiss this ground of appeal. Mr. Caridi is not facing liability merely because of his status as an officer and director of TOKI; instead, while he was a director, Mr. Caridi made fraudulent misrepresentations to CHU. The law is clear that fraud is a basis to hold officers and directors personally liable for their conduct, even where the conduct is in the course of their duties and arguably in the interests of the corporation. In the circumstances, it is not necessary to assess whether there is any uncertainty in the law and, if so, to provide further guidance about when officers and directors of a corporation can be personally liable for tortious conduct leading to pure economic loss. Nor is it necessary to provide further guidance on the circumstances in which the conduct of an officer or director of a corporation can be characterized as exhibiting a separate identity or interest.
[84] I start with a review of the trial judge’s reasons for finding Mr. Caridi personally liable, followed by a discussion of the law in this area and my conclusion that the trial judge did not err in finding that Mr. Caridi should be held personally liable for CHU’s losses.
a. Trial judge’s finding of personal liability
[85] In this case, the trial judge found that Mr. Caridi should be held personally liable because his conduct was tortious in itself and because it exhibited a separate identity or interest from that of TOKI. His complete reasoning on both issues was set out in two paragraphs.
[86] First, the trial judge reasoned that he was not precluded from finding that Mr. Caridi’s conduct was tortious in itself, despite the fact that CHU suffered an economic loss rather than a physical injury:First, [Mr.] Caridi caused TOKI to make the fraudulent misrepresentation that induced CHU to enter into the Contract. While most of the decisions addressing the personal liability of directors involve either the tort of inducing a breach of contract or tortious conduct causing physical injury, property damage or a nuisance, the case law does not preclude the extension of the principle to torts causing economic loss such as the tort of deceit or fraudulent misrepresentation in a contractual context. [87] Second, the trial judge found that Mr. Caridi’s conduct exhibited a separate identity or interest because of the agreement that Mr. Caridi would share the profits 50/50 with TOKI:Second, and more importantly, the facts of this case fall squarely within the circumstances in which the conduct of the directing mind of a corporation exhibits a separate identity or interest from that of the corporation. In this case, [Mr.] Caridi acknowledged that, to the extent any profits were realized, they were to be divided, between himself personally and TOKI on a 50:50 basis. In these circumstances, [Mr.] Caridi was acting in a personal capacity, as well as in his capacity as the sole director and an officer of TOKI, when the fraudulent misrepresentations were made to CHU that induced it to enter into the Contract, to make full payment of the purchase price, and to refrain from terminating the Contract and taking action to recover monies paid to TOKI prior to March 30, 2020. [88] Mr. Caridi submits that the trial judge’s reasoning on the issue of his personal liability is conclusory and insufficiently explains his conclusion that Mr. Caridi should be personally liable for conduct tortious in itself or conduct exhibiting a separate identity or interest. He further argues that he should not be found personally liable, in part, because CHU suffered an economic loss rather than a physical injury and because, following the trial judge’s logic, any profit-sharing agreement could amount to a finding of a separate identity or interest. Mr. Caridi also argues that the law in this area lacks clarity, and that the court should take the opportunity to offer guidance for future cases.
[89] I agree with Mr. Caridi that the trial judge’s reasoning on the issue of personal liability is sparse. His reasons fail to explain what conduct that is “tortious in itself” means and how Mr. Caridi’s conduct is tortious in itself. His explanation regarding a separate identity or interest also fails to explain how what amounts to a profit-sharing agreement forms the basis for personal liability. More importantly, the trial judge fails to identify the obvious and straightforward path to Mr. Caridi’s personal liability in this case, namely the fraudulent nature of his conduct. As I explain below, it was not necessary for the trial judge to assess whether Mr. Caridi’s conduct was tortious in itself or whether it exhibited a separate identity or interest. The fraudulent nature of the conduct was sufficient to ground a finding of personal liability.
b. Basis for personal liability of officers and directors of a corporation
[90] There are at least two different avenues for holding officers and directors personally liable for the tortious conduct of a corporation. First, in specified circumstances, the court can pierce the corporate veil to find an officer or director, who is found to be a directing mind, liable for acts attributed to the corporation. In this case, as reviewed above, the trial judge concluded that the test for piercing the corporate veil was not met. Second, in some circumstances, the court can find the officers or directors of a corporation personally liable for tortious acts that might otherwise be attributed to the corporation, even when piercing the corporate veil is not available. Personal tort liability is the focus of this ground of appeal.
[91] There are three earlier decisions from this court that are typically referred to as authorities for the circumstances under which officers or directors of a corporation can be held personally liable for the tortious conduct of the corporation: ScotiaMcLeod Inc. v. Peoples Jewellers Ltd. (1995), 1995 CanLII 1301 (ON CA), 26 O.R. (3d) 481 (C.A.); Normart Management Ltd. v. West Hill Redevelopment Co. (1998), 1998 CanLII 2447 (ON CA), 37 O.R. (3d) 97 (C.A.); and ADGA Systems International Ltd. v. Valcom Ltd. (1999), 1999 CanLII 1527 (ON CA), 43 O.R. (3d) 101 (C.A.), leave to appeal refused, [1999] S.C.C.A. No. 124. In all three cases, the court discussed the circumstances under which an officer or director could be held liable for the apparent tortious conduct of the corporation.
[92] In ScotiaMcLeod, at pp. 490-91, the court described the categories of cases where officers and directors may be found personally liable as follows:The decided cases in which employees and officers of companies have been found personally liable for actions ostensibly carried out under a corporate name are fact- specific. In the absence of findings of fraud, deceit, dishonesty or want of authority on the part of employees or officers, they are also rare. Those cases in which the corporate veil has been pierced usually involve transactions where the use of the corporate structure was a sham from the outset or was an afterthought to a deal which had gone sour. There is also a considerable body of case-law wherein injured parties to actions for breach of contract have attempted to extend liability to the principals of the company by pleading that the principals were privy to the tort of inducing breach of contract between the company and the plaintiff: see Ontario Store Fixtures Inc. v. Mmmuffins Inc. (1989), 1989 CanLII 4229 (ON SC), 70 O.R. (2d) 42 (H.C.J.), and the cases referred to therein. Additionally there have been attempts by injured parties to attach liability to the principals of failed businesses through insolvency litigation. In every case, however, the facts giving rise to personal liability were specifically pleaded. Absent allegations which fit within the categories described above, officers or employees of limited companies are protected from personal liability unless it can be shown that their actions are themselves tortious or exhibit a separate identity or interest from that of the company so as to make the act or conduct complained of their own. [Emphasis added.] [93] In Normart, at p. 102, the court picked up the last sentence from this quote from ScotiaMcLeod, and stated that:It is well established that the directing minds of corporations cannot be held civilly liable for the actions of the corporations they control and direct unless there is some conduct on the part of those directing minds that is either tortious in itself or exhibits a separate identity or interest from that of the corporations such as to make the acts or conduct complained of those of the directing minds” [Emphasis added.] [94] In ADGA Systems, the court undertook a detailed analysis of the circumstances under which officers or directors may be held personally liable. The court stated that the authorities clearly confirm that “employees, officers and directors will be held personally liable for tortious conduct causing physical injury, property damage, or a nuisance even when their actions are pursuant to their duties to the corporation”: ADGA Systems, at para. 26. The court went on to consider the circumstances in which officers or directors may be liable for “economic recovery”, ultimately quoting the passages above from ScotiaMcLeod and Normart, to the effect that officers and directors can be personally liable for conduct that is either tortious in itself or exhibits a separate identity or interest from that of the corporation.
[95] Together, ScotiaMcLeod, Normart, and ADGA Systems affirm that an officer or director’s actions within their scope of responsibility are generally attributed to the corporation, and the corporation is liable for the consequences. However, an officer or director may face personal liability – either alone or jointly with the corporation – in some circumstances, including: (i) where the director’s conduct is independently tortious or “tortious in itself”; or (ii) where the director acts pursuant to a “separate identity or interest”.
[96] The cases are not clear regarding whether intentional torts, including fraud, are a separate category from conduct that is tortious in itself or conduct that exhibits a separate identity or interest, or whether it fits into one or both of these categories. In my view, fraudulent conduct is consistent with both categories. The fraudulent conduct of an officer or director who ostensibly acts in a corporation’s name may be tortious in itself. Similarly, an officer or director who engages in fraudulent conduct, ostensibly on the corporation’s behalf, but for his or her own benefit, exhibits a separate identity or interest.
[97] However, I see no benefit to requiring that, in any given case, the court fit the fraudulent conduct into one of these categories. Fraud by an officer or director, who purports to act on behalf of a corporation, should lead to personal liability regardless of whether the conduct is characterized as tortious in itself or as exhibiting a separate identity or interest. This is certainly consistent with the passage from ScotiaMcLeod, at p. 491 cited above to the effect that “[i]n the absence of findings of fraud, deceit, dishonesty or want of authority on the part of employees or officers”, cases where an officer or director of a corporation will be held personally liable are rare.
[98] It is also consistent with other cases where courts have found fraud by a director or officer can lead to personal liability without the need to determine whether the conduct was tortious in itself or exhibited a separate identity or interest. In effect, courts in Canada have recognized fraud as a basis for imposing personal liability on individual actors within a corporation: see e.g., XY, LLC v. Zhu, 2013 BCCA 352, 366 D.L.R. (4th) 443, at paras. 74, 80; Driving Force Inc v. I Spy-Eagle Eyes Safety Inc, 2022 ABCA 25, 37 Alta. L.R. (7th) 218, at para. 66. Other jurisdictions have followed this approach as well: see e.g., Contex Drouzhba Ltd. v. Wiseman, [2007] EWCA Civ 1201. Direct participation in fraud is therefore a standalone basis for directors’ and officers’ personal liability.
[99] In effect, where a director or officer personally engages in fraud, even on behalf of the corporation, the director – to use the language of ScotiaMcLeod – makes the fraud their own.
c. Analysis on the issue of Mr. Caridi’s personal liability
[100] In the context of his appeal, Mr. Caridi relies on decisions from the Court of King’s Bench of Alberta to suggest that the law on personal liability for officers and directors is unclear and that it requires clarification. For example, in Axiom Foreign Exchange International v. Rudiger Marketing Ltd., 2024 ABKB 224, 68 Alta L.R. (7th) 46, at para. 67, Feasby J. stated that “Canadian law concerning the liability of corporate agents in tort has been a mess for at least a quarter century.” Feasby J. goes on, at para. 68, to state that the confusion arises from what he perceives as discrepancies between this court’s decision in ScotiaMcLeod and in AGDA Systems:The problem is rooted in two arguably contradictory decisions of the Ontario Court of Appeal from the 1990s: ScotiaMcLeod Inc v Peoples Jewellers Ltd, 1995 CanLII 1301 (ON CA) [“ScotiaMcLeod”]and ADGA Systems International Ltd v Valcom Ltd,1999 CanLII 1527 (ON CA) [“ADGA”]. ScotiaMcLeod is widely viewed to stand for the proposition that directors and officers will only be personally liable if they are not acting in the best interests of the corporation. ADGA is typically understood to stand for the proposition that directors and officers of a corporation are always liable for their own torts, even when acting in the best interests of the corporation. Most subsequent cases concerning corporate agents’ liability in tort choose to follow either ScotiaMcLeod or ADGA or their respective progeny. [101] Mr. Caridi urges this court to clarify the law. He suggests that the court could adopt the approach of the Court of Appeal for Alberta in Hall v. Stewart, 2019 ABCA 98, 82 Alta. L.R. (6th) 233, at para. 18, which sets out a list of factors that the courts have adopted in assessing whether personal liability should be imposed on officers and directors of a corporation. Notably, these factors include “[t]he nature of the tort, and particularly whether it was an intentional tort”.
[102] In this case, Mr. Caridi is not facing liability for fraud merely because of his status as a director. Instead, while he was a director, Mr. Caridi made fraudulent misrepresentations to CHU on TOKI’s behalf. Mr. Caridi himself made the misrepresentations, and Mr. Caridi himself was reckless as to their truth. In these circumstances, where case law has consistently recognized directors’ liability for intentional torts, including civil fraud, and where Mr. Caridi’s own conduct satisfies all the elements of the tort of civil fraud, the trial judge committed no error in concluding that Mr. Caridi should be held personally liable.
[103] In the circumstances, I agree with CHU that this case does not require the court to clarify the scope of personal liability for officers and directors of corporations more generally, specifically with respect to the scope of conduct “tortious in itself” or the scope of conduct that exhibits a “separate identity or interest”. It is also not necessary to address the issue of whether there is any inconsistency between this court’s decisions in ScotiaMcLoed and AGDA Systems. There is no ambiguity or uncertainty in the law that applies in the circumstances of this case. There may be other cases where there is uncertainty regarding whether the tortious conduct of an officer or director of a corporation should lead to personal liability. At that point, it may be necessary to clarify or develop the law. However, the common law is meant to develop incrementally in response to new and evolving circumstances: Merrifield v. Canada (Attorney General), 2019 ONCA 205, 145 O.R. (3d) 494, at para. 20. Mr. Caridi’s fraudulent conduct does not require this court to resolve any unsettled issues.
[104] Mr. Caridi committed civil fraud, and he should therefore be held personally liable for CHU’s losses.
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