Joint and Several Liability Final Report: Quick Facts

Joint and Several Liability Final Report: Quick Facts2017-03-03T18:33:23+00:00

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Why Joint and Several Liability Applies to the Acts of Professionals under the OBCA: the Ontario Negligence Act provides that a plaintiff who successfully claims damages from more than one wrongdoer may claim all the damages from any one wrongdoer; that wrongdoer may then claim damages from the other wrongdoers. The Negligence Act applies to the OBCA.

 

The Issue: Sometimes the other wrongdoers are no longer available. For example, a corporation may go bankrupt. The result may be that a single wrongdoer may be liable for the full amount of damages.

 

Scope of the OBCA: In Canada, individuals may incorporate a business under the federal business law statute or one of a number of provincial/territorial statutes. Ontario’s Business Corporations Act contains corporate law rules and duties that govern the relationship between the corporation, directors, officers, its shareholders and its stakeholders.

 

Corporations Are Public or Private: Corporations can be classified as private or public. A private corporation, also known as a closely held corporation or a non-offering corporation, has few shareholders, each with a relatively significant economic interest. The shares of closely held corporations generally have restrictions on their transfer of ownership. In contrast, a public corporation, also known as a widely held corporation or an offering corporation, has many shareholders, each of whom has a relatively small economic stake in the corporation. Shares of public corporations are freely-tradeable and often trade on stock exchanges.

 

Obligations of Corporate Directors: Under the OBCA, directors are responsible for managing and supervising the business affairs of the corporation. They owe a statutory duty of care and fiduciary duty to the corporation: they must act honestly and in good faith with the best interests of the corporation in mind.

 

Shareholder Rights: Shareholders of an OBCA corporation also have rights against the corporation. They have the right to elect the directors, approve bylaws, formally appoint the auditor, review the corporation’s financial statements, and the right to approve fundamental changes to the corporation. Shareholders and other stakeholders (such as customers, employees, and creditors) also have the right to pursue litigation in certain circumstances.

 

Corporate Professional Advisors: Corporations, their directors and officers rely on professional advisors to assist in carrying on the business and affairs of the corporation and helping to fulfill the corporation’s regulatory requirements. Auditors are engaged to audit financial statements and prepare audit reports, lawyers advise on the array of legal and regulatory issues, and other professionals, such as engineers, actuaries or geologists, may be used as required by the nature of the company.

 

Regulation: Legal claims involving parties subject to the OBCA take place in a system of joint and several liability: any one co-defendant is liable to pay the whole of a plaintiff’s loss and the risk of a co-defendant’s insolvency, unavailability or inability to pay falls on the co-defendants.

 

Other Jurisdictions: Some foreign jurisdictions have implemented a proportionate liability regime: co-defendants are only liable for the portion of their loss for which they were found to be at fault. Other jurisdictions use statutory limits (“caps”) on damages, often in conjunction with proportionate liability.

 

Difference between Joint and Several Liability and Proportionate Liability: The significant difference between joint and several liability, on the one hand, and proportionate liability or statutory caps on the other hand, concerns the allocation of risk. The former puts the risk of insolvent or unavailable co-defendant on the other co-defendants, while the latter transfers the risk to the plaintiff.

 

The Main Reasons the LCO Recommended Retention of Joint and Several Liability under the OBCA: The LCO reaches this conclusion on the basis that (i) the common law tests for professional negligence sufficiently address concerns about excessive or unfair liability; (ii) the available evidence on the specific deleterious effects of joint and several liability on insurance premiums, insurance coverage, pricing of audit services, and entry into the professions does not justify a change; and (iii) trends in other jurisdictions toward proportionate liability, particularly the United States, do not provide a sufficient grounding for reform, particularly in light of the more litigious environment in the United States.