BCLI issues report curbing unnecessary litigation risk for directors and officers
March 26, 2026
BY Greg Blue
BCLI has issued a new report aimed at injecting more clarity into an area of law where uncertainty creates unnecessary risk for directors and officers of being sued personally because of wrongs committed by their corporations. The Report on Non-Statutory Liability of Directors and Officers addresses a grey area where corporate law and the law of torts intersect, namely under what circumstances directors and officers share liability with the corporation for a common law tort. While directors and officers in business corporations are most affected, the report and its recommendations are relevant to both business corporations and incorporated not-for-profit organizations.
Torts are non-contractual civil wrongs. They include negligence, trespass, defamation (libel and slander), and interference with contractual relations, to name a few categories of torts. The law of torts consists mainly of common law. The sources of common law are judicial decisions (“case law”) rather than legislation.
The problem the report addresses is that when tort claims are made against corporations, the directors and officers are often sued as well even when the grounds for suing them personally are extremely weak or nonexistent. The unsettled state of the law encourages this. In a 2024 case, one Alberta judge summed up the issue by saying that “The Canadian law concerning the liability of corporate agents in tort has been a mess for at least a quarter century.”
Few tort claims against directors and officers actually succeed, but they are made anyway to create pressure for settlement by putting the personal assets of the individuals at risk. Judges have criticized this tendency, but seldom strike out claims against personal defendants in corporate litigation at a preliminary stage because the legal standard for taking that drastic step is very high. The claims against the personal defendants are usually allowed to proceed, allowing the risk exposure to the personal defendants to be used as leverage to force a settlement as the lawsuit continues.
Sometimes directors and officers are sued personally for purely “deep pockets” reasons, meaning they are sued as additional parties in an attempt to widen the scope of liability so collection will be possible from some source if the corporation is insolvent and unable to pay it.
These practices do not promote business efficiency, because boards and senior managers need to be able to make decisions in the interest of their organizations without constantly looking over their shoulders to avoid being sued personally. In addition, the cost of directors’ and officers’ (“D and O”) liability insurance is driven up because the insurance providers have to defend claims against insured corporate insiders whether the claims have merit or not
There are two diverging lines of case law regarding when directors and officers are personally liable for torts committed by their corporations. Each derives from a different decision of the Ontario Court of Appeal. The two Ontario Court of Appeal decisions are ScotiaMcLeod Inc. v. Peoples Jewellers Ltd. (“ScotiaMcLeod”) and ADGA Systems International Ltd v. Valcom Ltd. (“ADGA Systems”).
ScotiaMcleod has been treated in later cases following it as holding that directors and officers aren’t personally liable for corporate wrongs if they’ve acted honestly and in the best interests of the corporation. Under the ScotiaMcLeod line of cases, personal liability is largely restricted to cases where directors or officers have acted in bad faith, stepped outside their roles as directors or officers and pursued their own or other private interests, or otherwise haven’t acted in the best interests of the corporation. The ADGA Systems line of cases holds that directors and officers are personally liable in tort for what they do in their corporate roles even if they are acting in the interests of the corporation.
BCLI’s Project Committee didn’t find either of the two principal lines of case law in Canada satisfactory, and so didn’t choose between them. The project committee didn’t find a satisfactory approach to borrow from in other major common law systems either. Research showed that courts in the United Kingdom, the USA, Australia, and New Zealand have also struggled to determine when directors or officers ought to share in the liability of the corporation and when not.
The members of the BCLI Project Committee decided to chart their own course in seeking a solution. They came up with nine recommendations that its members think courts in the common law provinces and territories of Canada should apply when deciding cases involving personal claims against directors and officers based on tortious wrongs of the corporation. The nine recommendations are grounded in existing tort and corporate law principles. They are also carefully crafted to balance on one hand the reality of decision-making involved in running a corporation or a not-for-profit organization, and fairness to tort victims on the other.
Taken as a group, the nine recommendations in the Report on Non-Statutory Liability of Directors and Officers would provide a way out of the weeds of the contradictory fallout from ScotiaMcLeod and AGDA Systems, provide reasonable protection to directors and officers, and help to keep D&O insurance premiums down.
