Today the Supreme Court of Canada released a decision that highlights the risks that corporate directors and officers face – some knowingly and many unknowingly – and serves as a reminder that they can and do incur personal liabilities by virtue of their roles in their corporations.
In Barer v. Knight Brothers LLC, 2019 SCC 13 the Supreme Court of Canada upheld the jurisdiction of the Court in the state of Utah and held that a Utah judgment against a corporate officer and director who is a resident of Quebec should be registered and enforced against him personally in the province of Quebec.
At issue was a claim by Knight Brothers LLC against two companies owned by David Barer. Knight Brothers claimed that Barer’s companies did not pay the full amount owed under a contract between them. Knight Brothers then took the step of bringing a legal action against Barer’s two companies, as well as Barer personally on the basis that he fraudulently misrepresented that Knight Brothers would pay a certain amount, as a result his companies were unjustly enriched.
One of the two Barer companies abstained from defending itself, the other Barer company defended itself on the merits of the claim in the Utah Court and filed a counterclaim, while Barer personally brought a motion to dismiss. The Utah Court dismissed Barer’s motion and a default judgment was eventually rendered by the Utah Court against Barer personally and his two companies.
The strategic error of Barer was that he made substantive arguments in the Utah Court in the action brought by Knight Brothers. The Supreme Court of Canada found that presenting these substantive arguments amounted to Barer submitting to the jurisdiction of the Utah Court, which then created then permitted the registration of the Utah Court’s judgement in Barer’s home province.
The decision should cause business owners, directors, and officers to carefully consider:
1. their words and actions before making a promise or commitment on behalf of their corporation (as it was Barer’s verbal promise to Knight Brothers that they would be paid an increased price that was the basis of their claim against Barer personally);
2. whether revising a contract with a verbal promise is prudent under the circumstances (the time it takes to document revisions to a contract can make the difference to that revision being a personal promise of an officer or director and a commitment of that corporation);
3. if and how to respond to legal action brought against them in foreign jurisdictions (as it was Barer and one of his companies’ substantive submissions in the Utah Court that ultimately led to the Utah decision being registered and enforced in Quebec); and
4. whether they have the proper director & officer insurance policies in place to cover any risks they may be assuming by virtue of their positions in their corporation.