Client Updates

Ontario Court of Appeal Confirms Directors Can Be Personally Liable for Civil Fraud Without Piercing the Corporate Veil

Sarah Stothart and Ayesha Khanna
In CHU de Québec-Université Laval v. Tree of Knowledge International Corp.,1 the Ontario Court of Appeal held that direct participation in civil fraud is a standalone basis for imposing personal liability on directors and officers, without the need to pierce the corporate veil. The decision advances the existing line of appellate jurisprudence with respect to the circumstances in which an officer or director may be held personally liable for a corporation's tortious conduct.

Personal Liability of Individual Corporate Actors

Under Canadian law, it is well-established that a corporation is a separate legal entity, distinct from its shareholders, directors, officers, and employees, such that these individuals are generally protected from personal liability for a corporation’s conduct. Their actions within their scope of responsibility are generally attributed to the corporation, and the corporation is liable for the consequences.

However, in limited circumstances (such as when a corporate structure is used as a sham or for illegal, fraudulent, or improper purposes), Canadian courts may “pierce the corporate veil” and impose personal liability. Even without piercing the corporate veil, Canadian courts have also held that individual corporate actors are liable for their independent tortious conduct or conduct that exhibits a “separate identity or interest” from that of the corporation.

Factual Background to the Court of Appeal’s Decision

The underlying dispute before the Court arose during the COVID-19 pandemic, when Quebec’s largest hospital network, CHU de Québec-Université Laval (CHU), urgently required significant quantities of N95 masks certified by the National Institute for Occupational Safety and Health. In late March 2020, CHU entered into an agreement with Tree of Knowledge Inc. (TOKI), represented by its officer and sole director, Mr. Caridi, under which CHU was to acquire from TOKI three million certified N95 masks for approximately US$11 million, with delivery by March 28, 2020. TOKI and Mr. Caridi would share in the profits from the sale.

CHU paid TOKI in full as a condition of the sale, prior to receiving any masks. TOKI ultimately failed to deliver any certified N95 masks as promised. The evidence at trial established that, despite Mr. Caridi’s representations that the promised masks could be delivered by the promised date, at the time the agreement was made, Mr. Caridi had not sourced any certified N95 masks, had no honestly held belief that the masks could be delivered by March 28, and was aware that the masks being delivered may not be the certified N95 masks CHU ordered.

Despite finding it inappropriate to pierce the corporate veil (since TOKI was not a sham or incorporated for illegal or fraudulent purposes), the trial judge found that Mr. Caridi’s conduct was independently tortious and exhibited a separate identity or interest from that of TOKI given that Mr. Caridi would personally share in the profits. The trial judge thus found Mr. Caridi personally liable and ordered him to pay approximately US$11 million to CHU.

The Ontario Court of Appeal’s Decision

On appeal, Mr. Caridi argued that personal liability of directors for conduct that is “tortious in itself” is not meant to extend to claims for economic loss. He also argued that the profit-sharing agreement between Mr. Caridi and TOKI could not alone form the basis for a finding that his conduct exhibited a separate identity or interest.

The Court of Appeal rejected these arguments and upheld the trial judgment, despite agreeing the trial judge’s decision on these issues was “sparse”. The Court held that direct participation in fraud is a standalone basis for directors’ and officers’ personal liability, even where the conduct occurs in the course of their corporate duties and arguably in the corporation’s interests. This basis for personal liability exists in addition to and regardless of the other previously recognized “tortious in itself” and “separate identity or interest” grounds for personal liability. While the Court noted fraudulent conduct is consistent with both categories, it saw “no benefit to requiring that, in any given case, the court fit the fraudulent conduct into one of these categories”.2

In finding Mr. Caridi personally liable, the Court emphasized that its finding did not stem simply from his status as a director, but rather from his having personally made fraudulent misrepresentations to CHU on TOKI’s behalf and from his recklessness as to their truth – in other words, that Mr. Caridi’s own conduct satisfies all the elements of the tort of civil fraud.

Key Takeaways
  • Fraud as a standalone basis for personal liability. While this decision may be limited to its unique facts, it is notable that the Ontario Court of Appeal has, for the first time, expressly stated that a director can be personally liable for civil fraud carried out in the course of his or her corporate duties, on a standalone basis, without any need to pierce the corporate veil and without need to grapple with the scope of conduct that is “independently tortious” or exhibits a “separate identity or interest” from that of the corporation.
  • Scope of "personal involvement" remains to be developed. The degree of personal involvement required to find an officer or director personally liable for fraud may evolve in subsequent cases. The conduct by Mr. Caridi and TOKI was egregious – Mr. Caridi personally made affirmative misrepresentations without any basis for an honest belief in their truth. This situation may be contrasted with a more ambiguous circumstance of, for example, a corporate officer signing a compliance certificate under a credit facility, despite knowing the company may be at risk of soon breaching its financial covenants. The Court’s decision introduces risk that such conduct may be attacked as reckless and fraudulent, but it equally leaves it open for subsequent cases to attempt to distinguish conduct that does not personally meet the test for civil fraud.
  • Future decisions to address the ScotiaMcLeod and ADGA Systems framework. Having found fraud to be a standalone basis for personal liability in the case before it, the Court declined to address an alleged inconsistency raised by Mr. Caridi between ScotiaMcLeod Inc. v. Peoples Jewellers Ltd.3 and ADGA Systems International Ltd. v. Valcom Ltd.4 According to Mr. Caridi and the Alberta case law on which he relied, ScotiaMcLeod and ADGA stand for contradictory principles on whether directors and officers can be personally liable only if they are not acting in the best interests of the corporation, or regardless thereof. The Court determined that Mr. Caridi’s fraud did not necessitate resolving this legal question and emphasized that the common law develops progressively in response to emerging facts. Any ambiguity with respect to the scope of the other personal liability exceptions will thus remain until a future decision presents the issue squarely before the Court for determination.

For further information regarding directors’ and officers’ personal liability for civil fraud, please contact any member of our Litigation and Dispute Resolution Group.

1  CHU de Québec-Université Laval v. Tree of Knowledge International Corp., 2026 ONCA 209 (“CHU de Québec”).

2  CHU de Québec at paras. 96–97.

3  ScotiaMcLeod Inc. v. Peoples Jewellers Ltd., 1995 CanLII 1301, 26 OR (3d) 481 (ONCA) (“ScotiaMcLeod”).

3  ADGA Systems International Ltd. v. Valcom Ltd., 1999 CanLII 1527, 43 OR (3d) 101 (ONCA) [“ADGA Systems”].

This update is for information purposes only. It is not to be relied on as legal advice. Should you require legal advice, we would be pleased to discuss the matters raised in this update in the context of your particular circumstances.

 

Expertise

Authors

Insights

View All Insights

Featured Work

View More Experience

News & Events

View More News & Events