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Defamation, Corporate News Releases and the Potential Liability of Directors.
Posted in Defamation

In 2012, the B.C. Supreme Court dismissed a defamation claim over a corporate news release that provided general information about the intended response to a lawsuit.  The case was dismissed on the grounds that news releases issued by public companies to report on litigation brought against them are published on occasions of either absolute or qualified privilege.  As such, the content of the news releases, even if defamatory, is protected and cannot be the basis of a defamation claim.

The claim arose when Redcorp Ventures Ltd., a publicly traded company, issued a news release about a claim brought against it by Merit Consultants International for breach of contract.  Merit had been providing consulting services to Redcorp but Redcorp terminated the contract.  Merit sued over the termination.  Redcorp issued a news release stating it had good reason to terminate Merit’s contract and would “vigorously defend the action and counterclaim alleging negligence and breach of contract on the part of Merit that has caused damage . . . , and for costs”.  Because Redcorp subsequently went into bankruptcy, Merit then sued Redcorp’s directors personally alleging that the news release was defamatory. 

The B.C. Court of Appeal recently dismissed an appeal of this case.  In doing so, they touched on the vexing issue of the potential personal liability of directors and officers for conduct they cause their company to undertake.  This issue is presently an unsettled one in Canadian law.  On the one hand, a company can only act through its agents and employees.  As such, provided directors and officers are acting within the scope of their authority, their conduct is that of the company, not theirs personally.  After all, businesses will not function efficiently if their officers and directors are inhibited from carrying out a corporate purpose for fear of being personally sued.

On the other hand, individuals are responsible for their own conduct.  If they undertake tortious behaviour, they ought to be responsible for it, even where it is done jointly with others (i.e., the company).  In Ontario, several cases have allowed claims against both the company and the directors carrying out the corporate activity. 

Resolving these competing interests is not an easy task.  In B.C., the dividing line appears to be that claims against directors and officers will only be viable if a plaintiff has an independent cause of action against him/her in addition to whatever the claim asserted against the company may be.  As is often the case, much depends on the facts of each claim. 

However, in the Merit case, while the Court did not reconcile these competing views, it did reach a conclusion that is encouraging for directors and officers.  They reasoned:

Without attempting to reconcile all the case law, it seems . . . that the case at bar lies at the far ‘no liability’ end of the spectrum of directors’ personal liability.  No “independent” or “personal” tort was pleaded and no allegation was made that the Directors had acted other than bona fide in the best interests of Redfern and Redcorp.  More importantly, it cannot be said on the evidence before the Court that the conduct of the Directors exhibited a “separate identity or interest” from that of the companies; that there was some activity that took the Directors “out of the role of directing minds of the corporation”, . . . ; nor that the conduct complained of consisted of physical injury, property damage or nuisance . . ., or fraud or dishonesty.

On this basis, the Court found no principled basis on which, even if the news release was defamatory, to visit liability upon the individual directors.  This decision is good news for officers and directors as it creates as bright a line as is currently possible in Canadian law to illustrate the type of conduct that will and will not attract personal liability.  As long as you are acting within the scope of your duties, and not for an ulterior or oblique purpose, then you will likely be protected from claims against you personally for the actions of the company.

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