Introduction
A corporation may appoint an individual to act as its “agent,” vesting that individual with the authority to act on the corporation’s behalf when signing contracts or making certain decisions. But what recourse does a plaintiff have when a corporate agent misrepresents the extent of their authority to act on the corporation’s behalf? Or when a corporate agent misrepresents the nature of the corporation’s future conduct? Can the corporate agent be held personally liable for such negligent misrepresentations? The Court of King’s Bench of Alberta (the “Court”) considered these questions in a recent decision, Axiom Foreign Exchange International v Rudiger Marketing Ltd, 2024 ABKB 224 (the “Axiom Decision”).
Background
Calvin Rudiger was the sole owner and shareholder of Rudiger Marking Ltd. (“RML” or the “Defendant”), where Calvin’s son, Morgan, served as a corporate agent. RML was in the business of exporting vehicles to the United States and hired Axiom Foreign Exchange International (“Axiom” or the “Plaintiff”) for currency exchange services. The parties entered into ‘open forward contracts’ that required RML to purchase Canadian currency at a fixed rate within a specified period. However, when the CAD-USD exchange rate rose considerably, RML refused to use Axiom’s services. As a result, Axiom commenced an action against RML for the amount owed under the contract.
The parties subsequently entered into a settlement agreement, in which RML agreed to pay the amount owed to Axiom. However, RML experienced financial difficulties and failed to make the required payments. Axiom subsequently resumed its action and obtained a judgment against RML, but RML had insufficient assets to satisfy the judgment. Axiom brought an action in tort against Calvin and Morgan Rudiger for alleged negligent misrepresentations that caused its losses.
An Action Commenced By or Against a Partnership Survives the Partnership’s Dissolution
Prior to commencing an action in tort against the Rudigers for their alleged negligent misrepresentations, Axiom dissolved its partnership. The Court had to determine the threshold issue of whether the action could be maintained despite the dissolution of the Plaintiff’s partnership.[1]
The Court found that partnerships are groups of legal persons “carrying on business in common with a view to profit.”[2] A partnership’s name merely describes this group of legal persons; it “does not signify the existence of a distinct legal entity.”[3] Therefore, “[a]n action commenced using the name of a partnership … is really an action by or against the partners.”[4] The Alberta Rules of Court also provides “that an action by or against a partnership may be brought in the name of the partnership or the individual partners.”[5]
As a result, the Court found that an action may be maintained by or against a dissolved partnership. However, if a partnership is dissolved after the commencement of an action, the parties should apply to amend the action’s style of cause “to identify the individual partners, [though] a failure to do so is not fatal.”[6]
The Law of Personal Liability for Corporate Torts is Unclear
Having found that the action could be maintained, the Court proceeded to survey “[t]he continuing division in the law concerning corporate agents’ liability in tort.”[7] The Court noted that this division originates from “two arguably contradictory decisions of the Ontario Court of Appeal,”[8] ScotiaMcLeod Inc. v Peoples Jewellers Ltd.[9] and ADGA Systems International Ltd. v Valcom Ltd.[10] According to ScotiaMcLeod, “directors and officers will only be personally liable if they are not acting in the best interests of the corporation.”[11] In contrast, pursuant to ADGA Systems, “directors and officers of a corporation are always liable for their own torts, even when acting in the bests interests of the corporation.”[12] Recent appellate decisions in British Columbia and Alberta highlight this continuing discrepancy in the case law.[13]
Corporate Agents May Be Personally Liable for Negligent Misrepresentations if Their Statements are Undertakings of Personal Responsibility
To resolve this division in the law, the Court cited Justice Slatter’s concurring opinion in Hogarth v Rocky Mountain Slate Inc.,[14] where he held that “the analysis of a corporate agent’s liability in tort should start with consideration of the nature of the duty of care as provided for in Cooper v Hobart, 2001 SCC 79.”[15] Therefore, the plaintiff and the corporate agent must be in a proximate relationship, and the losses suffered by the plaintiff must have been foreseeable.[16] In a proximity analysis, courts consider whether the plaintiff “willingly accepted and relied on representations from [a] corporate entity,” with the knowledge that they were “dealing with a limited liability partnership.”[17] Further, “even if proximity and foreseeability between a corporate agent and a stranger to the corporation alleging a tort was established, the Cooper analysis requires a court to consider whether residual policy concerns prevent the imposition of a duty of care.”[18]
While acknowledging that it is unclear if Hogarth is the law in Alberta, the Court nonetheless found that Justice Slatter’s concurring opinion in the decision “is the best way to bring order to this area of the law.”[19] Indeed, “[t]he logic of the Hogarth concurrence has been reinforced by developments” originating from other decisions.[20] For instance, pursuant to the Supreme Court’s decisions in Deloitte & Touche v Livent Inc. (Receiver of)[21] and 1688782 Ontario Inc. v Maple Leaf Foods Inc.,[22] “whether there has been an undertaking of responsibility as part of the proximity analysis is very much in keeping with Slatter J.A.’s approach.”[23] Therefore, applying the Hogarth methodology “requires the principle of separate corporate personality to be balanced with competing concerns – specifically, the importance of holding individuals accountable for their actions and injured parties being compensated for their losses – on a case-by-case basis.”[24]
The Court Found the Rudigers Did Not Undertake Personal Responsibility for Their Representations to the Plaintiff
Axiom alleged five separate instances of negligent misrepresentation by the Rudigers. In applying the Hogarth methodology, the Court found that “[t]he question that must be considered with respect to each of the alleged misrepresentations is whether the [Rudigers’] statements … amounted to an undertaking of personal responsibility to Axiom for RML’s obligations.”[25] To this end, the Court must consider “[t]he context surrounding the representation … [and] whether it was reasonable for the plaintiff to rely on the individual defendant’s connection to the representation as engaging a personal duty on the part of that defendant.”[26] The five separate instances of alleged negligent misrepresentation are described below:
- First, Axiom alleged that Morgan Rudiger signed a contract as RML’s owner, despite being an authorized representative only. However, Axiom knew that Calvin Rudiger was RML’s sole owner based on a corporate search and Calvin’s prior statements to Axiom. Further, there was no evidence to suggest Axiom would not have entered into an open forward contract with RML if Morgan Rudiger had used his correct title.[27]
- Second, Axiom alleged that Calvin Rudiger promised to honour the parties’ open forward contracts. The Court found that such statements did not indicate that Calvin Rudiger agreed “to forsake the shield of limited liability and take on personal liability for RML’s contractual obligations.”[28]
- Third, Axiom alleged that Calvin Rudiger promised to “chisel away” at RML’s obligations to Axiom. However, the Court found that this statement “was clearly a representation concerning the future conduct of RML and not in any way an undertaking of personal responsibility.”[29] The contractual obligation to make payments under the contracts belonged to RML only.
- Fourth, Axiom alleged that Calvin Rudiger promised he would use Axiom’s currency exchange services only until the amounts owed by RML to Axiom were paid. The Court found that Calvin’s statement concerned RML’s future conduct, without any intention to undertake personal responsibility for RML’s contractual obligations. Furthermore, the Court found that “[t]he tort of negligent misrepresentation cannot impose personal liability on Calvin Rudiger for making a quasi-contractual commitment on behalf of RML and then changing his mind and causing RML to break that commitment.”[30] Pursuant to the rule in Said v Butt,[31] corporate agents cannot be personally liable for procuring a corporation’s breach of contract.[32]
- Finally, Axiom alleged that Calvin and Morgan Rudiger promised that RML would pay the amount agreed to in the parties’ settlement agreement. However, the Court found that such statements were captured in the settlement agreement itself, and “a plaintiff’s recourse for statements subsequently captured in a contract is limited to the law of contract.”[33] Further, the Rudigers did not personally guarantee RML’s obligations under the settlement agreement.
Conclusion
The Court found that, throughout all the parties’ interactions, Axiom knew RML was a limited liability corporation and at no time did Axiom request personal guarantees from the Rudigers.[34] Thus, despite being RML’s corporate agents, the Rudigers were not personally liable for any negligent misrepresentations made.
While the Rudigers were not personally liable for negligent misrepresentation, the Court found that RML made payments to Calvin Rudiger when RML was insolvent, and those funds should have been used to pay RML’s debt to Axiom.[35] Although the payments constituted fraudulent preferences, the Court found it was unable “to recreate the pre-transfer status quo” by ordering Calvin Rudiger to return the funds to RML, given that RML no longer existed.[36] However, RML had been enriched at Axiom’s expense, and no juristic reason existed for the benefit and corresponding detriment.[37] Therefore, as the operating mind of RML, Calvin Rudiger was liable in damages to Axiom for unjust enrichment.[38]
Practical Takeaways
The Axiom Decision considers when a corporate agent may be held personally liable for misrepresenting the extent of their authority to act on the corporation’s behalf or misrepresenting the nature of the corporation’s future conduct. In determining whether a corporate agent may be personally liable for an alleged negligent misrepresentation, Alberta courts may engage in a duty of care analysis, and consider whether the plaintiff and the corporate agent were in a proximate relationship and whether losses from the alleged negligent misrepresentation were foreseeable. In its proximity analysis, the Court may consider the context in which the statements were made, including whether the plaintiff was aware it was dealing with a limited liability corporation and whether the corporate agent undertook personal responsibility for the representation.
Overall, the Axiom Decision is an attempt to clarify the law regarding corporate agents’ personal responsibility for a corporation’s torts. However, its influence on the development of the law in this area remains to be seen.
Miller Thomson’s Commercial Litigation Group is experienced in a variety of disputes and is always mindful of conducting litigation in a cost-effective and efficient manner. If you require assistance or advice in this area, please reach out to our legal team.
[1] Axiom Foreign Exchange International v Rudiger Marketing Ltd, 2024 ABKB 224 at para 37 [Axiom].
[2] Ibid at para 41, citing Partnership Act, RSA 2000, c P-3, s. 1(g).
[3] Axiom, supra note 1 at para 37.
[4] Ibid at para 43.
[5] Ibid at para 42, citing Alberta Rules of Court, Alta Reg 124/2010, r. 2.2 (emphasis added).
[6] Axiom, supra note 1 at para 43.
[7] Ibid at para 71.
[8] Ibid at para 68.
[9] ScotiaMcLeod Inc. v Peoples Jewellers Ltd., 26 OR (3d) 481, 129 DLR (4th) 711 (ONCA).
[10] ADGA Systems International Ltd. v Valcom Ltd., 43 OR (3d) 101, 168 DLR (4th) 351 (ONCA).
[11] Axiom, supra note 1 at para 68.
[12] Ibid.
[13] Ibid at para 71, citing The Owners, Strata Plan KAS 3410 v Meritgage Lofts Inc., 2022 BCCA 109 at para 28 and Driving Force Inc v I Spy-Eagle Eyes Safety Inc, 2022 ABCA 25 at para 64.
[14] 2013 ABCA 57 [Hogarth].
[15] Axiom, supra note 1 at para 72.
[16] Ibid.
[17] Ibid, citing Hogarth, supra note 15 at para 121.
[18] Axiom, supra note 1 at para 73, citing Hogarth, ibid.
[19] Axiom, supra note 1 at paras 74-75.
[20] Ibid.
[21] Deloitte & Touche v Livent Inc (Receiver of), 2017 SCC 63.
[22] 1688782 Ontario Inc. v Maple Leaf Foods Inc, 2020 SCC 35.
[23] Axiom, supra note 1 at para 75.
[24] Ibid at para 77.
[25] Ibid at para 81 (emphasis added).
[26] Ibid para 79, citing Hogarth, supra note 15 at para 123.
[27] Axiom, supra note 1 at paras 46-49.
[28] Ibid at para 83.
[29] Ibid at paras 87-88.
[30] Ibid at para 93.
[31] [1920] 3 KB 497.
[32] Axiom, supra note 1 at para 92.
[33] Ibid at para 95, citing Queen v Cognos Inc, [1993] 1 SCR 87 at 113.
[34] Axiom, supra note 1 at para 80.
[35] Ibid at para 107.
[36] Ibid at paras 110-11.
[37] Ibid at para 114.
[38] Ibid at para 115.
