Offices in Ottawa and Perth
(613) 722-1500

CONTACT US (613) 722-1500

Corporate Directors – The Duty of Care

Corporate Directors – The Duty of Care

By:

Posted April 4, 2018

What is the standard of competence that directors must meet in carrying out their duties?

Serving as a corporate director in a corporation governed by the Canada Business Corporations Act (“CBCA”) imposes various duties on an individual. Such duties include a duty to manage, a fiduciary duty, and an obligation to disclose conflicts of interest.

Among these duties, section 122(1)(b) of the CBCA also imposes a duty of care on directors that reads as follows:

122 (1) Every director and officer of a corporation in exercising their powers and discharging their duties shall

[…]

(b) exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.

This duty to be reasonably prudent cannot, in itself, ground a claim against a director. Rather, this standard informs the courts’ view of what behavior should be considered acceptable in the context of a claim brought under another provision – most often an oppression claim based on s. 241 of the CBCA, but occasionally in tort claims brought by third parties such as corporate creditors.

Courts want to see that directors seek out the information necessary to make a decision, carefully consider that information, and generally take the time to examine an issue thoroughly. When directors have done this, then courts will be very reluctant to find fault with the resulting decision. The fact that a given decision may have turned out badly for a corporation is not determinative of any breach of duty on the part of the directors. Canadian courts apply the “business judgment rule” as a general approach. According to this rule deference should be given to corporate decision-makers, in recognition of the risk and competition inherent in any competitive business environment.

The Supreme Court of Canada addressed the balance between deference and holding directors accountable for breaching their duty of care as follows:

In determining whether directors have acted in a manner that breached the duty of care, it is worth repeating that perfection is not demanded.  Courts are ill-suited and should be reluctant to second-guess the application of business expertise to the considerations that are involved in corporate decision making, but they are capable, on the facts of any case, of determining whether an appropriate degree of prudence and diligence was brought to bear in reaching what is claimed to be a reasonable business decision at the time it was made.

Corporate directors in Canada should be aware of the “reasonably prudent” duty of care they owe in making decisions on behalf of the corporation. Similarly, anyone seeking to advance a claim against a director personally should first consider whether the director’s conduct could be considered sufficiently unreasonable and imprudent to give rise to liability. As long as a director can demonstrate that they took care in reaching their decision, the courts will be deferential – even if the results for the corporation or other stakeholders were negative.

This blog post was written by Brett Hodgins, a member of the Commercial Litigation team.  He can be reached at 613-369-0379 or at brett.hodgins@mannlawyers.com.

More Resources

Blog |
Family Law

By: 

Posted November 29, 2022

When a Court is charged with structuring a parenting arrangement leading up to trial, the bench is often faced with conflicting and untested evidence about[...]
Blog |
Employment, Labour, and Human Rights

By: 

Posted November 24, 2022

The Employment Standards Act, 2000, “ESA” has been amended to require that Ontario employers create an electronic monitoring policy per the requirements of Bill 88,[...]
Blog |
Commercial Litigation

By: 

Posted November 22, 2022

In Ontario, the Small Claims Court offers parties a more expedient, cost-effective process for litigating smaller value claims, in comparison to the processes of the[...]
Blog |
Business Law

By: 

Posted November 14, 2022

Private corporations governed under the Canada Business Corporations Act (“CBCA”) will soon be required to report certain information about individuals with significant control directly to[...]
Blog |
Environmental Law

By: 

Posted November 8, 2022

Biodiversity is immensely important to our ecosystem.  Species at risk face considerable threat to their continued existence, much of which results from human harm to[...]
Blog |
Estate Litigation, Wills, Trusts and Estates

By: 

Posted November 1, 2022

Disputes over funeral and burial arrangements can arise after the death of a loved one. These disputes may involve disagreements over the funeral arrangements, including[...]

Subscribe to Our Newsletter

"*" indicates required fields

Name*
Consent*
This field is for validation purposes and should be left unchanged.