Surrogacy and the Law in British Columbia

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Surrogacy is when a woman enters into an agreement with intended parents to carry a child that she will not be a parent to. This can be done either with the surrogate’s DNA or an implanted embryo. One, both, or neither of the intended parents may contribute reproductive assistance to the creation of the child. Surrogacy is highly regulated in Canada. Unlike in other countries, such as the United States, surrogates in Canada cannot be paid or compensated to be a surrogate. The Assisted Human Reproduction Act (“AHRA”) governs surrogacy and it sets out among other things, strict rules for how surrogates can be reimbursed for expenses.

Assisted human reproduction in Canada is considered altruistic and cannot be done for profit. Because surrogacy is an altruistic endeavour, surrogates also must not suffer any loss; thus the ways they may be reimbursed for specific expenses are set out in the AHRA and in the applicable Regulations. This includes documented travel expenses, medical expenses, groceries, any loss suffered to income as a result of the pregnancy so long as a medical practitioner has signed off on the loss, and other related expenses (with receipts). Additional compensation by the intended parents to any party involved with the surrogacy (the surrogate, any agency assisting with finding a surrogate, other donors etc.) can result in penalties under the AHRA. Speaking to a lawyer who specializes in fertility law to understand how intended parents can thank their surrogates is highly recommended.

While surrogacy is regulated at the federal level, especially in regards to compensating surrogates, it is also governed by the BC Family Law Act (“FLA”). The FLA defines “assisted human reproduction” as a means a method of conceiving a child other than by sexual intercourse. Reproduction through sexual intercourse would not qualify to be a surrogacy in BC, but would rather require that the intended parents enter into an adoption agreement with the birth mother.

BC has a fairly comprehensive statutory approach to surrogacy and covers that a donor (surrogate, egg, sperm, or the like) is not automatically considered a “parent” based solely on the donation (s. 24 FLA). BC law requires that intended parents and surrogates go through a two-step process: a surrogacy agreement prior to conception, and written consent of the surrogate after the birth (s. 29 FLA). Note that if a surrogacy agreement/ arrangement is not entered into prior to the conception, then the birth mother will be considered the child’s parent under s. 27 of the FLA.

The requirements for a surrogacy agreement are set out in s. 29 of the FLA which must include that

  • it must be in writing,
  • be made before the child is conceived through assisted reproduction, and
  • confirm that the birth mother will not be a parent of the child (FLA s. 29(2)).
  • Upon the birth of a child born as a result of assisted reproduction, it must be confirmed that no party to the agreement withdrew prior to the conception, and
  • the surrogate must give written consent to surrender the child to the intended parents (FLA s. 29(3)).
  • To be a surrogate, a woman must be at least 21 years of age (AHRA s. 6(4)).

Additionally, though not required, it is recommended for the safety of the surrogate that only women who have previously given birth become a surrogate. When considering surrogacy, either as a surrogate or intended parents, it is important to have a comprehensive agreement to set out the expectations of all parties. Because it is not required in BC to get a court order declaring parentage, and intended parents can be parents to the child born through surrogacy so long as there is a valid agreement, ensuring their is a written agreement between the intended parents and the surrogate is crucial. Consulting a lawyer prior to the conception of a child and prior to entering into such an agreement is strongly advised. Failure to do so could result in confusion and eventually having to attend Court to get a declaration of parentage, among other possible issues. Having a child should be a joyous time for intended parents and surrogates alike, and ensuring to have all parties’ rights and obligations clearly set out in the beginning will make for the best experience as parents embark on their parenting journey.

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Secret Recordings by Parents in Family Law Cases

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In Canada, it is legal to record a party without their knowledge as long as one of the parties being recorded (which includes the person doing the recording) consents (Criminal Code s. 184(2)). However, simply because something is legal does not mean it will be admissible in court. This is especially so when it comes to secret recordings in family law cases.

A recent case in Ontario, Van Ruyven v Van Ruyven, 2021 ONSC 5963, dealt with two parties who put into evidence secret recordings they had taken of the other. The judge decided that the recordings could not be considered as evidence, and that such conduct was to be discouraged by the courts. This case has been cited by courts in BC, Alberta, and Saskatchewan, as well as Ontario, as judges caution family law litigants from engaging in the questionable activity of secretly recording one’s ex; or worse, one’s child.

Family proceedings can be extremely acrimonious. As such, some parents record the other parent or their child, in an often misguided attempt to collect evidence that the recording party thinks will amount to a “smoking gun”. However, this can often backfire and the recordings may cast doubt on the ability of the recording parent to put the needs of their child in front of their own desire to “win”. This was particularly so in K.M. v J.R., 2022 ONSC 111, where both parents secretly recorded each other, and the judge stated that parents need to be strongly discouraged from engaging in such behaviour.

The judge in that case, who had reviewed the recordings, stated in regards to the content of those recordings that

“[t]he adults were so busy arguing and screaming at each other that they didn’t seem to hear the boy say something that should have been obvious. “I’m scared.” (para 203(f)). The judge went on to say “the manner in which the recording was created raises serious questions about parental insight and sensitivity” (para 208 (e)).

In a similar situation, suspiciously obtained evidence was considered in a recent BC case: Steiner v Mazzotta, 2022 BCSC 827, where, in the context of the ongoing COVID-19 pandemic, a parent snuck onto the other parent’s property and took pictures of the parent who was with the child not wearing a mask in contravention of a previous order. The judge in Steiner admitted the picture as evidence, but stated: “Although the respondent’s poor conduct yielded evidentiary material that I could not properly exclude or ignore, such behaviour is not to be encouraged” (para 11(c)).

Note that whether or not secret recordings will be accepted by the court is up to the discretion of the judge, and that the creation and the attempted use of such recordings may backfire.

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The Effects of Bankruptcy on Family Law Orders

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Divorce is an emotionally and financially difficult process, leaving many people on the verge of insolvency. It is important for both parties to a divorce to know that while some types of debts are forgiven upon the completion of bankruptcy, many family law obligations are not. Spousal and child support obligations pursuant to a family court order are not dischargeable debts. In fact, a recipient spouse under a support order receives a preferential payout, placing them ahead of many other types of creditors in line to receive the same assets.

Costs awards in family law proceedings are categorized the same as the subject matter that the trial or application addressed, and each are treated differently in bankruptcy. A costs award following a trial dealing with support claims will be treated as a non-dischargeable debt, for instance, while a costs award following a parenting trial would be considered an unsecured claim in bankruptcy. Many trials do not deal with a single discrete issue, which risks making the categorization of a costs award on bankruptcy unclear. For this reason, it is important to consider whether the parties are at risk of insolvency at the time a cost order is made, so that costs can be apportioned per issue addressed at trial.

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Retroactive Spousal Support and Delay

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Entitlement for spousal support can be contractual, needs-based, or compensatory if one party was disadvantaged by the breakdown of the marriage. Once the court finds entitlement, they consider how long and how much should be paid for spousal support. An order for spousal support can be retroactive as well as ongoing.

In the past, some judges have declined to order retroactive spousal support or ordered a lower amount when there has been substantial delay in seeking spousal support. However, in a recent case, Legge v Legge, 2021 BCCA 365, the Court of Appeal has confirmed that where there is a clear entitlement to spousal support, a court should make a retroactive spousal support award that takes into account both the payor’s circumstances and the objectives of the spousal support, notwithstanding delay.

In this case, the parties separated after an 8-year relationship. The couple had met while the wife was pursuing post-secondary education, and decided to move to Alberta for the husband’s employment. The wife’s education was interrupted while both parties worked. They had a child together, and the wife became her primary caregiver and worked part-time. Following their separation, the wife initiated court proceedings for spousal support among other things, however, she never received a final or interim spousal support order.

Several years later, the husband commenced a divorce and property division action, and the wife counterclaimed for retroactive spousal support. At trial, the judge found that the wife had been disadvantaged by the marriage and also had a needs-based entitlement for spousal support, but that the 10 years since the parties had separated constituted undue delay. As a result, they declined to make a retroactive spousal support award.

On appeal, the court found that the trial judge had given insufficient weight to the wife’s needs and hardship, and thus the Order had failed to meet the spousal support objectives. The Court of Appeal was further persuaded by the recent Supreme Court of Canada Case Michel v. Graydon, 2020 SCC 24, which highlights the many obstacles to access to justice faced by family litigants, and requires courts to consider the reason for any delay in bringing proceedings. As a result, the Court of Appeal awarded the wife a lump sum retroactive spousal support award of $27,000.

Do you think you might have a case for a retroactive spousal support appeal?

Heath Law LLP is a full-service law firm serving Nanaimo and Vancouver Island that boasts high calibre, experienced legal counsel in divorce and family law. Review our Family Law page, meet our lawyers, or read more of our blog articles or contact us to book an appointment with one of our highly skilled lawyers.

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Limitation of Liability Clauses in Contracts

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6362222 Canada Inc. v. Prelco Inc., 2021 SCC 39: A Victory for Limited Liability Clauses

In general, limitation of liability clauses are valid in both Quebec’s Civil system and in the Common Law provinces. However, in Quebec limitation of liability clauses are tempered by articles in the Civil Code of Quebec prohibiting the exclusion of liability for intentional fault, bodily injury, and other public order issues. A recent Supreme Court of Canada case has strengthened the power of limited liability clauses and narrowed the applicability of the Breach of Fundamental Obligation Doctrine.

The case centered on a contractual dispute between 6362222 Canada Inc. (“Createch”), and their client, Prelco Inc. Createch is a consulting firm offering integrated management systems and performance improvement solutions. The parties entered into a contract which included a limited liability clause, stipulating that Createch’s liability to Prelco for damages for any cause whatsoever would be limited to amounts paid to Createch under the contract. A further stipulation was that Createch could not be held liable for any damages resulting from the loss of data, profits or revenue, from the use of products, for any other special, consequential, or indirect damages relating to services and/or material provided pursuant to the contract.

Two years into the contract, Prelco opted to terminate the relationship due to numerous problems with the system and Createch’s implementation. Prelco brought an action against Createch for $6,246,648.94 in damages for the reimbursement of an overpayment, costs for restoring the system, claims from customers, and loss of profits. The Superior Court found the limited liability clause to be unenforceable as it went to the essence of a fundamental obligation, and as such ordered a substantial judgment against Createch. The Court of Appeal dismissed the appeal.

The Supreme Court allowed the appeal, stating that the test for unenforceability due to the Doctrine of Breach of a Fundamental Obligation had not been satisfied. In order to find a clause inoperable on this basis, the validity of the clause has to either (a) be contrary to a public order limitation or (b) deprive a contractual obligation of its purpose. The SCC found that the clause did not run contrary to a public order limitation and that since Createch still owed significant obligations to Prelco the validity of the clause would not deprive the contract of its purpose to the extent required by the Doctrine. As such, the principle of freedom of contract supported the enforceability of the limited liability clause.

Takeaway: if you are contracting with a party that is insisting that there be clauses within the contract whereby they are excused from any liability, even for their own negligence, be aware that a Court will probably uphold the limitation of liability clause in the contract. In such a situation, you should consider the extent to which you can insure over the risks that flow from the contracting party’s negligence.

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Relief from Forfeiture under a Commercial Lease

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Relief from forfeiture is an extraordinary equitable remedy that the courts can apply at their discretion, which allows them to forgive imperfect compliance with a contractual or statutory requirement. In choosing to apply relief from forfeiture, the court is deciding to protect a party against a loss that would otherwise occur from that party’s breach on the basis that not to do so would be unequitable.

In a recent case, Airside Event Spaces Inc. v Langley, 2021 BCCA 306, the courts have reiterated that an applicant must act in good faith in order for relief from forfeiture to be appropriate, regardless of the disproportionality between the loss suffered on forfeiture and the loss suffered by the other party due to the breach of contract.

In this case, the company was leasing a hangar at the Langley Regional Airport from the city of Langley, which the city had terminated because the company breached the lease contract. The company admitted that it had breached the lease in numerous ways, and to having failed to remedy the breaches when Langley gave it the chance. Still, the company claimed that the loss that they would suffer compared to the loss that Langley had suffered through their breaches was so disproportionate that the court should use their power to apply relief from forfeiture. The company had paid $440,000 for the premises in 2013, and claimed to have invested in excess of $1.5 million in improvements over the years that it had leased the space. The B.C Supreme Court Judge found that since the company had misled Langley, attempted to conceal breaches of the lease, altered the premises contrary to the lease and without the lessor’s consent, and performed all manner of other misconduct that the company had not remotely acted in good faith. As such, the Judge dismissed the application and refused to apply relief from forfeiture.

On appeal, the Court confirmed that Judge had correctly considered the evidence in this case, and did not commit an error by finding that the consequences of the forfeiture, although significant, did not justify relief from forfeiture due to the company’s clear bad faith.

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B.C Land Owner Transparency Register

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URGENT: B.C. LAND OWNER TRANSPARENCY REGISTER (“LOTR”)

We write to advise that effective November 30, 2021, the B.C. Government requires that
any Corporation, Trust or Partnership that owns an interest in real estate must file a
Land Owner Transparency Report with the Land Owner Transparency Registry.
Failure to file may result in government-imposed penalties.

What is the Land Owner Transparency Registry?

The Land Owner Transparency Registry is a publicly searchable registry of information about
beneficial ownership of land in British Columbia. Beneficial land owners are people who own or
control land indirectly, such as through a corporation, partnership or trust.

The Registry is intended to end hidden ownership of land and combat money laundering in B.C.
The B.C. provincial government created the LOTR to identify the individuals that actually own
real estate in the province.

Does the Land Owner Transparency Registry apply to you?

With few exceptions, all corporations, partnerships and trusts that own real estate in British
Columbia must register. Trusts include formal trusts, bare trusts, and prescribed trusts.

What do you need to do?

If you own an interest in land in a corporation, partnership or trust, you must prepare and
register a Transparency Report with the LOTR by November 30, 2021. An interest in land
includes a fee simple interest, life estate, or long-term lease.

The Transparency Report contains information about:

1. The corporation, partnership or trust that owns real estate (“Reporting Bodies”);
and,

2. The individuals who are beneficial owners of the corporation, partnership or
trust, as well as settlors of trusts (“Interest Holders”).

HEATH LAW LLP

The Transparency Report discloses information about Interest Holders, including:

1. Name
2. Citizenship
3. Social Insurance Number (or Individual Tax Number)
4. Date of Birth,
5. Residency for Tax Purposes, and
6. Address

Only some of this information will be publicly searchable, and certain Interest Holders are
eligible to restrict what is available to the public. Government agencies will have access to all
information. All Interest Holders must be advised that their personal information was included
in a Transparency Report and a special letter giving notice under the legislation must be
provided to the Interest Holder.

The Transparency Report must be uploaded to the LOTR Registry online.
The report must also be updated when the information concerning the Interest Holder changes, for
example, a change in residential address, name, or ceasing to be an interest holder.
Specific reporting requirements apply for each type of corporation, partnership, trust, and
Interest Holder.

A failure to prepare and upload a Transparency Report may result in the government pursuing
administrative penalties of up to $50,000 or 5% of the assessed value of the real estate.

What Heath Law LLP can do to help?

We have a team of lawyers and staff well versed in preparing Transparency Reports and
compliance under this new LOTR legislation.

Please advise our office by November 1, 2021, if you own real estate in a corporation, trust or
partnership, and if you would like our assistance in preparing and filing a Land Owner
Transparency Report.

Yours truly,
HEATH LAW LLP

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Could a Director of a Company be held Personally Liable for a Company’s Income Tax?

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Short Answer:

Generally, a director will not be held liable for corporate income tax absent misconduct. However, s.160 of the Income Tax Act introduces liability in certain circumstances where assets have been transferred by a taxpayer who owes a tax debt. The purpose behind this provision is to ensure that the CRA is able to collect tax debts where assets have been divested for less than market value.

Discussion:

Unlike s. 227.1 of the Income Tax Act, where a director’s liability is limited to tax withholdings and the like, s.160 creates liability for the recipient in a non-arm’s length transfer if the transferor has any kind of tax debt.

S. 160 applies to a person who has received a non-arm’s length transfer of property when the transferor owed a tax debt at the time the transfer occurred, and the transferee did not pay the market value for the property. Per s. 160(1), the transferee may be held jointly and severally liable for the tax debt, including interest, to the lessor of:

a) The value of the property transformed minus consideration given for it by the transferee; or
b) The total tax and interest that the transferor was liable to pay in or in respect of the year of the transfer and any preceding years.

In Borealis Geopower Inc. v the Queen, 2018 TCC 189 the Court applied s. 160 to corporate income tax. S.160, therefore, creates a situation where a director could incur personal liability for all or a portion of the income tax debt of the corporation if they were the transferee as described above.

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Family Law: Form 8 Financial Statement: Purpose and Use

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Providing financial disclosure in the course of a Family Law dispute can be overwhelming. This post is meant to be a brief guide on how and why you should complete the Form F8 Financial Statement (“F8”), and to address some common questions.

What is the F8?

The F8 requires you to be open and honest about your finances so that each party in a family law dispute, your lawyers, and the Court may know the starting point for negotiations and orders.

The F8 is a sworn document, meaning that being dishonest in completing it has the same consequences as lying under oath. Carelessness and inaccuracies in the F8 will reflect poorly on your credibility and may result in unfavorable treatment by the Courts. Many of the main issues in a family law dispute revolve around financial support and division of property, so a complete and accurate F8 is integral to resolving your dispute in an efficient, fair, and cost-effective manner.

Timelines:

The Supreme Court Family Rules require each party to exchange an F8 and supporting financial documents within 30 days of either commencing a Family Law action (for the Claimant) or from being served with a Notice of Family Claim (for the Respondent).

Structure:

The F8 is divided into six parts:

1) Part 1: Income
2) Part 2: Expenses
3) Part 3: Property
4) Part 4: Special or Extraordinary Expenses
5) Part 5: Undue Hardship
6) Part 6: Income of Other Persons in Household

Page 2 of the F8 indicates which parts to complete based upon the claims that are being made. It is important to refer to your financial documents while completing the F8. Categories like expenses and income may be difficult to ascertain, but it is important that you do not guess based on what you think your finances might be.

General Tips for Completing the F8:

Income for Those who are Self-Employed:

Arriving at your net income amount may be difficult. Some expenses, such as gas, cell phone, meals with clients, and a portion of your utilities or mortgage may be expenses that should be deducted from your gross income but not listed in Part 2 of the F8. You may wish to consult with your lawyer and accountant in completing this section.

Expenses:

Record what you actually spend. The relevant information is not what you would like to spend, or how much you used to spend before the separation. Put in your current expenses without embellishing.

If you share household expenses with another person, for instance, if you have remarried, are living with a new partner, or have a roommate, do not list the total combined amount; only record your share of the household expenses that you actually pay.

Periodic expenses should be divided to arrive at your monthly amount. If you pay some expenses annually or biannually, such as car insurance or property taxes, divide the total by 12 or 6 to come to the monthly amount.

Record expenses incurred or reasonably anticipated for the year. Some expenses, such as re-roofing or tree trimming, happen less often than once a year. If the expense arose this year, include it in the F8. If you re-roofed your home last year, then do not use that expense as an estimate of this year’s house maintenance costs, because it will not be repeated this year.

Property:

List all of the assets that you own, either solely or jointly with someone else (identify the co-owner of the property and the extent of their interest). Include assets that your spouse will not make a claim against, those that are located outside of Canada, those that you have acquired since the date of separation and those that your spouse does not know about.

You must list all of the assets that you have disposed of, including by sale or by gift, in the 2 years preceding the application. This includes assets that you owned independently of your spouse, dispositions that your spouse consented to, and assets that your spouse did not know about.

Debts should be listed in this section. A mortgage is considered a debt, and loans from friends or family should be included as well.

Changes in Circumstances:

The F8 is mostly based on information and documents from the recent past. The F8, therefore, provides a snapshot of a particular time in your financial life. If you anticipate any changes in circumstances in the near future, such as a promotion, your children moving out of your home, a change in pension income, etc., this should be listed on page 3 of the F8.

Parts 5 and 6: Undue hardship and Income of Other Persons in the Household

These sections are relevant in very particular circumstances. If you are unsure of how to complete these sections and how they apply to your situation, you may wish to consult a lawyer.

Consequences of Insufficient, Dishonest, or Lack of Disclosure:

A Court has the discretion to set a party’s income for the purposes of calculating child and spousal support if they feel that insufficient disclosure has been made. If a Court imputes a party’s income in this manner, the result could be an order for a higher amount of support than what would have been made if the party had disclosed their income.

Lack of financial disclosure at the time of the creation of a separation, co-habitation, or marriage agreement is grounds to set these agreements aside. If your agreement regarding how to divide assets is set aside, the Court has the discretion to divide the family property between the parties according to the property and support regimes in the Divorce Act (Canada) and the Family Law Act. Full and honest disclosure is, therefore, key to creating an enforceable agreement.

Finally, inaccurate disclosure can increase your legal costs by dragging out negotiations and by requiring your lawyer to continuously clarify and revise your documents.

 

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The Personal Liabilities of a Director of a Corporation

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BRIEF ANSWER

In the absence of fraudulent or illegal conduct or conduct that is beyond the scope of the director’s authority, a director will not generally face personal liability. However, a director may be held personally liable if they fail to indicate that they are acting in their capacity as a director, breach their fiduciary duties, or fail to act in an objectively reasonable manner. A director may also face personal liability for any amounts owing to the government that the company has failed to pay for income tax, GST, Employment Insurance or the Canada Pension Plan. A director may protect against personal liability by prudently fulfilling their obligations as a director and by ensuring that there are proper protections in place to minimize the risk of personal liability.

DISCUSSION

In general, a company will shield a director from personal liability while they are acting as a director, provided that they are not acting fraudulently or illegally. However, there are certain circumstances in which a director will face personal liability.

A director owes a duty of care to the company by virtue of their position. The applicable standard of care is set out in the Business Corporations Act to be that of a reasonably prudent individual in comparable circumstances. Directors with special expertise or knowledge (such as a lawyer, accountant, etc.) will be held to a higher standard of care. A director may delegate responsibilities to others, such as an officer or an expert; however, the director remains responsible to ensure that the individual is competent and that they adequately perform their duties. A director who breaches their duty of care to the company may face personal liability for any loss that the company suffers as a result.

A director has a fiduciary duty to act honestly and in good faith, with a view to the best interests of the company. This requires the director to avoid the pursuit of personal gain where it is inconsistent with the best interests of the company, act selflessly and loyally as a director of the company, maintain the confidentiality of information acquired by virtue of their position, and avoid conflicts of interest or disclose conflicts in a timely manner. A conflict of interest may arise where a director has a material interest in a contract, decision, or transaction contemplated by the company, when a director enters into a contract that competes with the company, or when the director takes an opportunity that rightfully belongs to the company. A director who breaches their fiduciary duty to the company may face personal liability for any loss that the company suffers as a result of the breach.

A director may face personal liability if it is not clear to other parties that he or she is acting in their capacity as a director of the company. If third parties believe they are dealing with an individual and not a company, the director may face liability for any obligations or losses resulting from the transaction. A director will also be personally liable for their tortious conduct to third parties if the director is not acting within the scope of their authority or on behalf of the company. A director must act in accordance with the applicable statutes, regulations, memorandum and articles of the company. If they fail to do so and behave improperly, they may be held personally liable.

Although directors generally only owe a duty to the company, in certain cases courts have held directors personally liable for breaching a duty to creditors. For example, failing to act reasonably by preferring one creditor over another when the company was insolvent, or engaging in other conduct prohibited by the Bankruptcy and Insolvency Act may give rise to personal liability. A director may also be personally liable for oppression or unfairly prejudicial conduct towards certain stakeholders, such as shareholders. These parties have reasonable expectations that directors will fulfill their duties to the company fairly. Consequently, in certain circumstances, a director may be personally liable if, for example, they gained a personal benefit or increased their control of the company as a result of the oppressive or unfairly prejudicial conduct.

Statutory provisions may also impose personal liability on a director. For example, a director will face personal liability if they pay a dividend, purchases, or redeems shares in the company where the company is insolvent or the action would render it insolvent. Indemnifying another director or officer where indemnity is not permitted by the company’s articles, its memorandum, or by statute may also result in personal liability. Authorizing the making of a false or misleading statement can give rise to personal liability. Significantly, while a director is generally not liable for the misdeeds of other directors if a resolution that authorizes illegal or improper conduct is passed while the director is absent, that director must dissent in writing within seven days of learning of the prohibited act or they will face personal liability. If there is a causal connection between a director’s inaction and a loss suffered by the company, then the director may be held liable for the loss.

Where the director failed to exercise due diligence, depending on the nature of the business a number of other statutes may also impose liability. A director may face personal liability if a company fails to pay the Canada Revenue Agency for any amounts owing, including interest and penalties, GST remittances, failure to withhold and remit income tax, or failure to deduct and remit for employment insurance or the Canada Pension Plan. Liability for these amounts only attaches to a director who was acting as a director when these amounts became due and has acted as a director within the last two years. A director should also be aware of a company’s need to withhold income tax for employees claiming tax exemptions under the Indian Act for Indian property that is not actually situated on a reserve. A director may face personal liability for any amounts that the company failed to withhold and that the CRA has been unable to recover from the company. A director may be excused from personal liability if they can demonstrate that they acted reasonably and diligently in the circumstances by trying to resolve any of the business’ financial difficulties to assist with payment and by ultimately ensuring that the company pays any amounts owing.

Under the Employment Standards Act, each director of a company may be liable for up to two months of unpaid wages for each employee. However, a director will not be personally liable for termination pay, vacation pay that becomes due after the director has ceased to hold office, or for money that remains in an employee’s time bank after the director has ceased to hold office if the company is in receivership or pursuing bankruptcy proceedings. Directors may also be liable for injuries related to unsafe working conditions.

A director may face personal liability for failure to comply with environmental laws where they did not exercise due diligence to prevent this failure. In certain cases, where a company’s actions have resulted in contamination, directors have been found personally liable despite not being a director at the time the company caused the contamination.

A director may reduce the risk of personal liability by properly fulfilling his or her duties as director, by being familiar and ensuring compliance with the applicable statutes and the company’s articles and other governing documents, by carefully appointing and maintaining proper supervision over officers and experts, and by maintaining appropriate governance policies. A director may also reduce his or her personal liability risk by ensuring that there is adequate liability insurance in place for directors and that there is an indemnity agreement from the company to provide indemnity for personal liability, when appropriate, that occurs while performing directors’ duties.

SUMMARY

The company will generally protect a director from personal liability; however, there are certain circumstances in which a director will experience personal liability. In addition to personal liability for fraudulent or illegal conduct, a director may also face liability for failing to represent oneself as a director of the company or failing to act within the scope of their authority as director. A director must also ensure that he or she is familiar with any laws under the statutes that apply to the company, and that any obligations arising from income tax, GST, Employment Insurance, or the Canada Pension Plan are withheld and remitted. In order to avoid personal liability, a director must fulfill their obligations to the company by acting in the best interests of the company, by exercising reasonable care, diligence and skill, and by acting in accordance with the applicable statutes, regulations, and the memorandum and articles of the company.

 

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