Required Reading: Hogarth v Rocky Mountain Slate Inc., 2013 ABCA 57

Hogarth v Rocky Mountain Slate Inc., 2013 ABCA 57, from the reasons of Slatter JA concurring in the result:

[16] The issue on this appeal is whether the promoters of a limited partnership are personally liable to investors for misrepresentations made about the investment. …

[73] The law respecting the liability of directors and officers for torts committed while conducting corporate business is not entirely consistent. Some cases approach the problem from the perspective of the “duty of care”,whereas others approach it from the perspective of “piercing the corporate veil”. Some exceptions to general liability for tort have been recognized, and others have been rejected, without any clear principle emerging.

The trial judge held the officer personally liable. The ABCA unanimously set aside that judgment.

Excerpts from the majority reasons: -

[1] We agree with our colleague that Simonson’s appeal must be allowed. For the reasons expressed herein, however, we would allow the appeal on narrower grounds.

[2] Slatter J.A. reviews in detail the negligent misrepresentations found by the trial judge, and concludes that the record supports only the misrepresentation concerning the involvement of a mining engineer. However, Slatter J.A. finds that there is no proven causal link to the damage suffered (para 46).

[14] We are not satisfied that the conduct of Simonson was tortious in itself, or exhibited a separate identity or interest from that of RMS, the corporation. Here, the statements were made for the purposes of raising funds for the corporation and for its benefit. It is not sufficient to create a separate identity that Simonson himself was an officer and investor in the corporation. … Nor did the trial judge identify any aspect of Simonson’s conduct in making the impugned representations independent from his activity as a corporate officer. The claim against Simonson for personal liability in carrying out the business of the corporation must fail.

Excerpts from Slatter JA’s reasons:

[16] The issue on this appeal is whether the promoters of a limited partnership are personally liable to investors for misrepresentations made about the investment. The defendant Simonson appeals the trial judgment finding him personally liable for the investors’ losses: …

[132] A threshold question relates to the very foundation of corporate liability for torts. The law appears to recognize corporate torts, individual torts, and vicarious corporate liability for individual torts. When attempting to hold individuals responsible for torts committed while conducting corporate business, the issue is said to be whether there is an “independent tort”that could be the foundation of individual liability. A number of cases recognize this as a necessary criterion, although London Drugs holds that conduct directly related to discharging the company’s business can still be sufficiently “independent”, undermining the usefulness of the concept.

….

[150] On these facts it is difficult to find any “independent tort”on the part of the appellant. The representations made by the company and those said to be made personally by the appellant are indistinguishable. … There does not appear to be any basis for distinguishing this representation as merely being one of the company, whereas the earlier misrepresentations were also “independent” misrepresentations by the appellant. This merely demonstrates the artificiality of attempting to separate corporate from individual torts.

[145] Even if proximity and foreseeability are shown, Cooper v Hobart holds that residual policy considerations must be considered before a duty of care is imposed. As discussed, there is a considerable overlap in the factors to be considered. An important residual policy consideration is the importance of the limited liability corporation in the Canadian economy. As previously noted, there is nothing illegitimate about using limited liability business structures, and imposing a duty that undermines the viability of that structure is a legitimate policy concern. While a few of the cases have paid lip service to this concept, there has been little real recognition of it in the ultimate decisions.

[154] On balance, there was insufficient proximity to warrant personal liability. Policy considerations at both levels of the analysis also speak against it. The legitimate expectations of the parties do not support personal liability. Simonson’s appeal should therefore be allowed.

[166] In conclusion, the decision under appeal discloses some errors in its conclusion that negligent misrepresentations were made. The facts of the case also do not support a finding of personal liability against the appellant Simonson. The appeal is allowed, and the action against Simonson is dismissed.

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