Be careful naming directors in lawsuits against their companies: Quebec Superior Court

Edifice 1010 Ste-Catherine Inc. sold a building to the non-profit Fondation Mario-Racine in 2006. Contrary to the deed of sale, the Fondation didn’t have GST and QST registration numbers that would exempt Edifice 1010 from paying taxes on the building’s sale.

Edifice 1010 learned of this in April 2008, and a few months later received assessment notices from tax authorities. It subsequently put the Fondation and its board of directors on notice of default, and then had the notices cancelled because the building’s sale had been rescinded.

In December 2012, Edifice 1010 sued the Fondation, its directors and the officiating notary for damages relating to expenses incurred in contesting the notices.

The Superior Court held the lawsuit was filed too late, and Edifice 1010 didn’t present evidence to waive the time limitation. The court also ruled the Fondation’s directors were sued because of their positions and they were not personally liable.

“The directors of a company or a foundation are entitled to not be sued personally merely because they acted in that capacity in the performance of their duties,” the court stated. “Lawsuits brought solely for this reason, in the hope of eventually, maybe, with a bit of luck, unearthing some fault on their part and hence finding a cause of action against them, is a clear example of recklessness.”

Take a look at our January 2015 story on D&O insurance.

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