The Alberta Court of Appeal recently decided a case in which the director of a construction company was sued in his personal capacity for injuries suffered on a job site. The case raised the question of whether a corporate director owes a duty of care to injured workers and the issue of the “corporate veil”.
The respondent was a director (“the director”) of a construction company, which was retained by a home building company as a sub-contractor to perform work on the construction of a new home. Part of the scope of the work was to install a temporary staircase into the basement of the new home. The claimants were employees (“the employees”) of another sub-contractor. The staircase installed by the construction companycollapsed underneath them, causing them injuries.
The staircase in question was prefabricated off-site by a third party and supplied by the home building company, but was installed at the new house by the construction company under the supervision of and with the participation of the director. He denied that there was any negligence involved in the installation, and alleged that the staircase failed because it was overloaded, or because other unidentified workers removed the bracing holding it in place.
Both the construction company and the employees’ employer were “employers” under the Workers Compensation Act. As a result, the employees could not sue the construction company for damages relating to their injuries, but instead were compensated by the Workers’ Compensation Board. The Board then brought a subrogated action against the director to recover the amounts it paid to the injured employees.
The director brought an application to summarily dismiss the action against him. He argued that any negligent act he may have committed was committed by him as part of his duties as an employee of the construction company, and not as an officer of that corporation.
A first proceeding granted the application, finding that the construction company was immune from suit, and the director was doing the exact act the company was retained to do. There was no overt or extraordinary act that took the director’s conduct beyond the scope of his employment. On appeal, a chambers judge agreed.
The issue on appeal was whether the director could be held personally liable for tortious conduct committed in his capacity as a director or employee of a corporation.
Court of Appeal Decision
The court began by stating:
“The central issue on this appeal is whether a corporate representative like the [director] is personally liable for damage that results from his own tortious conduct, but while he was acting as a representative of the corporation. This issue engages the legal status of corporations as separate legal persons, and the circumstances under which the “corporate veil” protects agents of the corporation from liability in tort.”
The court explained that the principle of corporate personality means that a modern corporation can own property, engage in business, and sue and be sued in its own name; a key feature of corporations is that the shareholders are not personally liable for the debts and obligations of the corporation. However, one area of potential personal liability is when officers and employees of a corporation cause damage by a tortious act.
The court stated:
“Finding representatives of corporations personally liable for torts engages competing policy objectives. One policy objective of the law of torts is the compensation of injured persons. A competing policy objective of corporate law is the limitation of personal liability for corporate acts.”
The court explained that tort liability generally arises when an individual owes a duty of care to an injured plaintiff, and breaches the standard of care. In some cases, corporations may owe duties of care to plaintiffs, but even then corporations must act through their human agents.
In this case, the court found that there was no doubt that both the director as an individual and the construction company owed a duty of care with respect to the installation of the staircase to others who might be on the construction site. And while the construction company was immune from liability under the Workers’ Compensation Act, the director did not benefit from the same immunity.
The court then said:
“The deciding factor in this case, however, is the nature of the damage: personal injury. A number of the cases where individual liability has been found for corporate torts concern physical damage or personal injury […] There is clearly a “duty of care” to avoid injuring one’s co-workers, and no residual policy considerations to exclude liability […] Anyone who agrees to install a staircase clearly owes a duty of care to those who are likely to use that staircase. Although the [director’s] tort was not at all “independent” of the [construction company], the modern corporation was not designed to be a method of providing immunity to corporate actors for this sort of loss. There are strong public policy reasons to ensure that physically injured plaintiffs are compensated.”
The court found the director could not escape personal liability for any personal injuries he caused to the employees as a result of a negligent act, even though his involvement in the construction of the staircase was a part of the business of the construction company.
As a result, the appeal was allowed, and the summary dismissal of the action was set aside.
The underlying disputes as to whether the staircase was negligently installed, whether that negligence caused it to fail, and if the employees’ injuries resulted from that negligence will be decided at trial or in another dispute resolution forum.
During the lifespan of a business, it is not uncommon for a diverse range of disputes to arise, including securities issues, interpretation of contractual language or clauses, disputes over payment for services rendered, employment claims, zoning issues, and more.
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