Legislated corporate governance provisions impose liability on persons with primary control of a company (directors and officers) and “gatekeepers” such as auditors and lawyers who are, under certain conditions, subject to civil liability. Auditors may be liable, for example, if there are misrepresentations or omissions in the financial materials and statements they prepare for their clients. The OBCA provides for joint and several liability, allowing a successful plaintiff to recover all damages from any one tortfeaser, regardless of the degree of fault (when the other defendant is bankrupt, or for other reasons, this tortfeaser may not be able subsequently to collect a proportionate share from the other defendant).
On the one hand, this approach is justified on the basis that the plaintiff should not have to bear the burden of the fault of any of the tortfeasers. On the other hand, it is argued that joint and several liability is not only unfair because it imposes responsibility for all damages on a defendant responsible for only a portion of the harm, but also increases the cost of doing business because of the high cost of insurance and makes Canada less competitive globally.
Other jurisdictions have been enacting reforms in this area, including abolishing the principle or limiting its applicability. The Canada Business Corporations Act (CBCA) provides for modified proportionate liability for federally incorporated companies. Federal securities law in the United States provides for proportionate liability in the case of “unknowing” misrepresentations. The U.K. permits “liability limitation agreements”. Australian corporate law provides for proportionate liability for claims of economic loss.
The focus of this project is specifically with respect to possible changes to the OBCA. It is not about tort reform more broadly. Consideration of issues arising from the broader context may contribute to the LCO’s analysis about liability and the policy considerations that must be measured when thinking about reform in this context, however.
On October 28, 2010, the LCO, supported by the Hennick Centre for Business and Law, held a roundtable discussion to review the “joint and several” liability scheme for professionals under the Ontario Business Corporations Act (“OBCA”), attended by a wide range of stakeholders.
After preliminary consultations and research, the LCO has developed this Consultation Paper which provides the basis for discussion with the public over the next several weeks. It seeks feedback on the following issues:
• The relationship between the substantive proof of a negligence claim against a defendant and recovery by way of joint and several liability or some other model
• The possibilities for conflict created by the differing models of liability in the OBCA, the CBCA, the OSA and elsewhere.
• The impact of liability regimes on private litigation generally as well as litigation strategy, settlements and outcomes
• The balancing/prioritization of the policy goals of compensation, deterrence and fairness when considering liability models
• The appropriate role of judicial discretion in apportioning liability
• The advantages and disadvantages of the contractual approach to limiting liability for professionals
The Consultation Paper concludes by asking the following:
• If a recommendation is made to move away from joint and several liability in the OBCA, how should the recommended model be structured?
Based on the LCO’s independent research, including the responses to the Consultation Paper, the LCO will make recommendations for reform to the OBCA that will be set out in a final report for the project.
Written submissions on the Consultation Paper will be accepted until June 30, 2010.
All interested parties are invited to provide submissions by mail, fax or e-mail to:
Law Commission of Ontario
Joint and Several Liability Project
276 York Lanes, York University
4700 Keele Street
Toronto, ON M3J 1P3
Fax: 416 650-8418
E-mail: LawCommission@lco-cdo.org
In addition, comments can be submitted using the LCO website comments form.
If you have questions regarding this consultation, please contact us at: (416) 650-8406