Personal Liability of Directors and Officers: When Will a Court Look Past the Corporate Form?

When a business falls short, the injured party will often try to hold both the corporation and the individuals behind it personally responsible. When will a court actually hold a director or officer personally liable?

In CHU de Québec-Université Laval v. Tree of Knowledge International Corp., 2026 ONCA 209, the Ontario Court of Appeal affirmed that fraud, including reckless misrepresentation, is a standalone basis for personal liability of a director or officer. No additional legal test needs to be satisfied. For conduct outside of fraud, the path to personal liability is more nuanced; courts weigh multiple factors, and outcomes are highly fact-specific. This post explains why.

Veil-Piercing vs. Personal Tort Liability: Two Distinct Routes to Personal Liability

A party seeking to make a director or officer personally liable for a wrong attributable to the corporation may take either of two routes:

1. The first is piercing of the corporate veil. This route asks a court to set aside the legal separation between the corporation and the individuals behind it, and to hold those individuals directly responsible for the corporation's acts. Canadian courts reserve this route for cases in which the corporation was used as a sham or was created or used for a fraudulent or improper purpose. The test is stringent, and most claims of this kind fail. The CHU decision was not a veil-piercing case: the trial judge found that the test for piercing the corporate veil was not met.
2. The second is personal tort liability. Liability for the individual's own civil wrongs. Personal tort liability arises where the individual's own conduct, viewed on its own and apart from the corporate form, meets the requirements of a recognized tort. It is the route that decides most cases in this area, and the route on which CHU turned.

Fraud as a Standalone Basis for Liability: The ScotiaMcleod Framework Clarified

The leading Ontario authorities on personal tort liability for directors and officers are ScotiaMcLeod Inc. v. Peoples Jewellers Ltd., 1995 CanLII 1301, 26 OR (3d) 481 (CA), Normart Management Ltd. v. West Hill Redevelopment Co. (1998), and ADGA Systems International Ltd. v. Valcom Ltd., 1999 CanLII 1527, 43 OR (3d) 101 (CA) — establish that a director or officer's actions within their scope of responsibility are generally attributed to the corporation and the corporation is liable for the consequences.

Personal liability may arise, however, where (1) the conduct is independently tortious or "tortious in itself," or (2) the officer or director acts pursuant to a "separate identity or interest." The scope of these categories has been the subject of longstanding debate, and some courts, including the Court of King's Bench, have described the law in this area as unclear.

The Court of Appeal in CHU declined to resolve that uncertainty, stating that "the common law is meant to develop incrementally in response to new and evolving circumstances".

What the decision does affirm is the principle that fraud by a director or officer is a standalone basis for personal liability. In the court's words, "[w]here a director or officer personally engages in fraud, even on behalf of the corporation, the director […] makes the fraud their own".

Thus, it is not necessary in a fraud case to determine whether the conduct was "tortious in itself" or exhibited a "separate identity or interest" from the corporation; the fraudulent nature of the conduct is sufficient on its own. Other Canadian appellate courts have applied the principle consistently.

What Counts as Fraud

The Court of Appeal in CHU confirmed that a director or officer who personally makes a fraudulent misrepresentation is personally liable. It is no defence that the misrepresentation was made on the corporation's behalf, in the course of the individual's duties, or in the corporation's interests.

Fraud in this sense does not always require dishonest intent. Recklessness as to truth is enough. A representation made without an honest belief in its truth, in the sense that they did not care whether the statement was true, closed their eyes to facts that would contradict it, or purposefully abstained from inquiring about facts that would contradict it, is sufficient.

In CHU, the trial judge accepted that the corporate officer was sincere in hoping he could deliver on what he had promised. That finding did not save him because he had no grounded basis for the representation at the time he made it (was reckless as to its truth). The Court of Appeal upheld the resulting finding of fraud on this basis.

The Court of Appeal further confirmed that personal liability for fraud extends to claims for purely financial loss and is not limited to tortious conduct causing physical injury, property damage or nuisance.

Personal Liability Beyond Fraud

Moving beyond the CHU decision itself, the broader case law offers important context for how these principles apply outside of fraud.

Outside of fraud, directors and officers are generally not personally liable for corporate obligations. Corporations are separate legal entities, and imposing personal liability too readily would undermine the corporation's value as a social and economic tool and discourage individuals from serving in these roles. But corporations can only act through people, and every corporate tort involves human conduct. In some circumstances, the individuals behind that conduct ought to be held personally liable. The question is where to draw the line.

In Hall v Stewart, 2019 ABCA 98, the Alberta Court of Appeal set out roughly 10 factors to consider, which together aim at reconciling the competing objectives described above, including:

• Was the person acting on company business? If the individual was carrying out ordinary corporate duties when the harm occurred, that weighs against personal liability. The corporate structure is designed to shield people in exactly that situation.
• Did the person have a personal interest at stake? If the individual stood to gain something beyond their normal role — a side benefit, a personal agenda — courts are more inclined to hold them personally accountable.
• Did this person owe a direct duty to the injured party? Sometimes an officer or director has a responsibility to someone that exists independently of the company's own obligations. When that personal duty is breached, the individual can be liable in their own right. In the case of conduct causing physical injury, property damage or nuisance, there will usually be a direct duty owed to the injured party.

Because courts weigh all the factors and circumstances together, similar-looking situations can produce different outcomes depending on the specific facts.

In Hogarth v Rocky Mountain Slate Inc., 2013 ABCA 57, the Alberta Court of Appeal found that a director who prepared and delivered promotional materials to raise investor capital was not personally liable for inaccuracies in those materials. His role was no different from what any corporate officer would ordinarily do on the corporation's behalf, and his conduct did not have a sufficiently separate identity or interest from the corporation to ground personal liability.

The specific facts matter most. While directors and officers who make representations on the corporation's behalf, for its benefit, are unlikely to face personal liability (even if those representations turn out to be wrong), courts do impose personal liability for negligent misrepresentation. This occurs most often where personal interests are at stake, and where transactional protections are absent: pre-contractual dealings acted on before any documents were in place, or statements made directly to non-parties such as lenders or investors. The risk also increases where the corporation has limited its own liability, is insolvent or underinsured, or where the claim against it is otherwise barred.

Practical Implications for Directors and Officers

In summary, the important takeaways for directors and officers are as follows:

• Fraud includes recklessness. In the context of misrepresentations, a director or officer who personally makes a statement intended to induce a counterparty to act, but who does so without an honest and grounded basis for the statement at the time it is made, is in the same legal position as one who lies outright.
• Sincerity is not a defence. Sincerely hoping a statement will turn out to be true does not answer a fraud claim.
• Reliance on third parties is not a defence. Expecting someone further down the chain to make the representation true after the fact, absent real confirmation, amounts to recklessness.
• The corporate form is not a defence. A director who commits fraud "makes the fraud their own" regardless of corporate capacity.
• The exposure extends to purely financial loss. There is no requirement that the plaintiff suffer physical harm or property damage.
• Outside of fraud, the analysis is more nuanced. There is no single test that applies. Courts consider a range of factors including whether the negligent act was committed while engaged in the business of the corporation, whether the individual was pursuing any personal interest beyond the corporate interest, and whether the director or corporate representative owed a separate and distinct duty of care towards the injured party.

This article addresses personal liability at common law. Directors and officers face a separate and often more extensive set of personal liabilities under corporate, tax, employment, environmental, and securities legislation, which are governed by their own statutory frameworks and are outside the scope of this discussion.