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On June 14, 2001, Bill S-11 received Royal Assent. That Bill amends the CBCA, the Canada Co-operatives Act, and other acts in a variety of ways.
For those interested in the liability of auditors of corporations, as well as the directors and officers of those corporations, three changes are significant:
- the introduction of a "modified proportionate liability" regime
- the replacement of the "good faith reliance" defence by a "due diligence" defence to certain liabilities under section 123(4) of the legislation
- the extension of the rules regarding corporate indemnification of directors and officers found in section 124
The latter two changes affect only directors and officers, and are not addressed further. |
Perhaps the most far-reaching change, and the one that will affect all auditors, directors and officers, is the introduction of a regime of "modified proportionate liability" to replace the current joint and several liability regime. Sections 237.1 to 237.9 are added to the CBCA with respect to claims for financial loss arising out of a misstatement in respect of financial information required by the Act. In principle, a defendant will in the future only be liable to pay damages that correspond to his or her degree of responsibility for the loss. There is a mechanism to redistribute the portion of the loss suffered by the plaintiff that is uncollectible due to the insolvency of a defendant, but there is a cap on the solvent defendant's liability for that additional amount equal to 50% of the solvent defendant's original percentage of liability.
For example, if the solvent defendant were found to be 10% liable and the insolvent defendant 90% liable, the solvent defendant would pay his 10% share of the damages. His share of the insolvent defendant's liability would then be capped at 5%, being half of his original exposure, for a total exposure of 15%.
There are certain exceptions to this rule, which depend either on the character of the breach committed by the defendant (i.e., a fraudulent defendant cannot benefit from the new rules) or the identity of the plaintiff (e.g., a charitable organization will still be able to recover 100% of its damage).
Obviously, it remains to be seen how our courts will interpret these new provisions and whether provincial legislatures will follow suit and make similar changes to provincial incorporation statutes. Directors and officers of some corporations now incorporated provincially will likely give serious thought to changing the jurisdiction of incorporation to benefit from the statutory amendments to the CBCA.
Practitioners should consult legal counsel on how these changes affect them.
Further discussion of this issue is available in the November 2001 CAmagazine.
Mindy Paskell-Mede, BCL, LLB, is a partner with the law firm Nicholl Paskell-Mede in Montréal, where she specializes in professional liability insurance. She is also CAmagazine's Technical Editor for Law.
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