The Alberta Court of Appeal recently revisited the question of directors’ personal liability for injuries sustained in a workplace incident.
In this case, the defendant was a director of a company which was retained as a subcontractor to perform work in a new home construction. The work included the installation of a temporary staircase. The director was involved in both the supervision and the actual installation of the staircase. The staircase collapsed, injuring the plaintiffs who were workers for another subcontractor also performing work at the house.
The plaintiffs were considered “workers” under the Workers’ Compensation Act (Alberta) (“WCA”) and both their employer and the director’s company were considered “employers” under the WCA. Therefore, both corporations were immune from suit pursuant to the WCA. The Workers’ Compensation Board (“WCB”) compensated the workers for their injuries and brought a subrogated action against the director in the name of the injured workers, seeking to recover the amounts the WCB had paid to the plaintiffs under the WCA.
The director successfully applied to a Master for summary dismissal of the claim. A Justice in Chambers dismissed the appeal. The plaintiffs appealed the dismissal of the action to the Court of Appeal.
The key question for the Court of Appeal was whether a corporate representative could be personally liable for damage resulting from his or her own tortious conduct while acting as a representative for the corporation. The Court noted that under the WCA, directors are not covered or immune from suit unless they have purchased personal coverage, regardless of whether the director is actually performing manual labour or not. The director in this case had not purchased personal coverage.
The Court then reviewed the importance of recognizing the separate corporate personality and limited liability, calling it an “essential tool of social and economic policy.” However, the Court acknowledged that corporations could be misused as a tool and thus it was important to hold directors personally liable when appropriate to do so.
The Court stated there was no doubt that both the director and his company owed a duty of care with respect to the installation of the staircase to others who might be on the construction site. When considering the question of when personal liability will attach to directors for corporate torts, the court recognized that the law was not clear and reviewed a number of relevant factors including:
- Whether the negligent act was committed while engaged in the business of the corporation;
- Whether the representative was pursuing any personal interest beyond the corporate interest;
- Whether the representative owed a separate and distinct duty of care towards the injured party;
- That the conduct was in the best interests of the corporation;
- Whether the plaintiff voluntarily dealt with the limited liability corporation, or had the corporate relationship imposed on it;
- The expectation of the parties;
- Whether the tort was independent;
- The exception in Said v Butt, regarding claims of inducing breach of contract;
- The nature of the tort, particularly whether it was an intentional tort; and
- Whether the damage was physical or economic.
While noting the challenges of deciding these matters on a case-by-case basis, the Court noted that a comprehensive and integrated test “remains elusive”. Ultimately, the Court found that in this case, the deciding factor was the nature of the damage as personal injury. Although the director’s tort was not independent of the corporation, the corporation was not designed to be a method of providing immunity to corporate actors for this sort of loss. There were strong public policy reasons to ensure that physically injured plaintiffs were compensated. Thus the Court found that the director could not escape personal liability for any personal injuries he caused to the plaintiffs as a result of a negligent act, even though his involvement in constructing the staircase was part of the business of his corporation.
The Court allowed the appeal and set aside the summary dismissal of the action. However, the decision did not resolve the action, as the Court did not determine the ultimate question of liability. The Court noted that there remained a dispute as to whether the staircase was negligently installed, whether that negligence caused it to fail, and whether the plaintiffs’ injuries resulted from that negligence. Nevertheless, the Court did clearly determine that a director without personal WCB coverage will be exposed to personal liability for workplace incidents in spite of the existence of a corporate entity. As the applicable tests for determining personal liability remain unclear, this will continue to be a difficult issue for directors to navigate.
Hall v Stewart, 2019 ABCA 98
By Cristina Wendel, Dentons Canada LLP