When a Director Is Personally Liable Without Piercing the Corporate Veil
A corporation is recognized as a distinct legal entity from its directors and shareholders, which makes it liable in place of any individuals involved in wrongdoing. Doing so encourages people to partake in business partnerships and companies to minimize their legal risks.
To prevent company directors from abusing this rule, courts have sometimes “pierced the corporate veil”. When an owner completely controls their corporation and as a cover for improper conduct, courts will ignore the corporation’s separate legal status. Doing so allows directors to be held personally liable for the wrongs they commit, though this remedy is used sparingly and only in exceptionally severe situations.
However, piercing the corporate veil is not the only method for holding a director personally responsible. In fraud cases, a director can act in their corporation’s best interests and still be liable if said actions were fraudulent. A recent Court of Appeal decision, CHU de Québec-Université Laval v. Tree of Knowledge International Corp. (“CHU”), affirms that directors can have personal liability without the need to pierce the corporate veil.[1]
CHU and Fraud Committed Within the Scope of Corporate Duty
In the initial CHU court action, the respondent CHU ordered a massive shipment of N95 masks from Tree of Knowledge Inc. (“TOKI”), which was never delivered and only partially refunded. At trial, TOK director Michael Caridi was found personally liable for civil fraud, as he had recklessly made false representations about his ability to deliver the masks. Without piercing the corporate veil, Mr. Caridi’s actions were of a “separate identity or interest” from his company, and his promise to deliver the masks when he had no guarantee of doing so was a fraudulent act.[2] Mr. Caridi was ordered to personally repay CHU for the masks order, which amounted to over $11 million USD.
Mr. Caridi appealed his judgment, arguing that the trial judge did not apply the proper test for personal liability, however the Court of Appeal reaffirmed the decision. Notably, the trial judge acknowledged that this was not an appropriate case for piercing the corporate veil, as TOKI was not a “sham corporation” nor did it exist purely as a shield for Mr. Caridi to commit fraud.[3] Despite this, Mr. Caridi was found personally liable because his conduct:
- Was a civil wrong resulting in the plaintiff’s economic loss;
- Showed a “separate identity or interest” from TOKI’s; and
- Was fraudulent in a way that was attributable to the corporation[4]
The Court of Appeal decided that Mr. Caridi’s committed civil fraud and should therefore be held personally for CHU’s losses. Prior decisions have repeated that directors are not liable for the actions of their corporations, but with exceptions: where the director’s conduct is distinct enough from corporate interests to “make the act or conduct complained of their own”, or where there is “fraud, deceit, dishonesty or want of authority on the part of employees or officers.”[5] Mr. Caridi was responsible for misrepresentations he knowingly made on his company’s behalf.
Will Courts Be Stricter on Fraud by Directors Going Forward?
Time will tell what long-term impact CHU will have, though it has already been cited in another fraud case, Helal v 8340501 Canada Corp.[6] This case involves a lawsuit against a company for fraudulent investments. The corporate veil was pierced as said company was little more than a vehicle for its director’s actions. Said director made fraudulent statements to induce the plaintiff to invest, such as by making promises to limit losses despite having no clear plans on how to do so. Like in CHU, acting recklessly met the threshold for fraud even without proof of intentional malice.[7]
These cases suggest a shift from past decisions where courts were more stringent in allowing claims against company directors personally. In a past decision, TSCC Corporation No. 2123 v. Times Group Principals struck out claims against individual directors who misrepresented the quality of their construction work, resulting in damage to a condominium building. The court found that they were “acting as the directing minds of the corporate entity” and declined to find that their activities showed any separate interest from the corporation.[8] It appears the courts may be more willing to find company directors personally liable for fraud, even when the corporate veil remains intact.
In a fraud claim against a company, it’s valuable to know when damages can be claimed from a director without needing to go through the corporate shield. At Walker Law, our experienced litigation lawyers can help you pursue your claim for damages. Please don’t hesitate to reach out for a consultation.
[1] CHU de Québec-Université Laval v. Tree of Knowledge International Corp., 2026 ONCA 209. [CHA]
[2] CHU at para 2.
[3] CHA at para 57.
[4] CHA at para 86-89.
[5] CHA at para 92, 97.
[6] Helal v 8340501 Canada Corp, 2026 ONCA 209. [Helal]
[7] Helal at para 45.
[8] TSCC Corporation No. 2123 v. Times Group Principals 2018 ONSC 4799 at para 64-65.
Tags: Civil Litigation law, Commercial Litigation Law and Fraud Litigation