PERSONAL LIABILITY OF DIRECTORS AND BUSINESS OWNERS IN TRADEMARK OFFENCES

Directors and business owners can, in certain circumstances, face personal liability for trademark offences where their conduct, oversight, or decision-making falls short of legal standards.

When Directors and Officers Can Be Personally Charged or Names

As a general rule, a corporation is treated as a separate legal entity, meaning liability typically rests with the corporation itself. However, directors and officers may face personal liability where their involvement goes beyond passive oversight. Courts will look closely at whether directors were acting in such a role that they became the directing minds of the corporation.

Directors owe both statutory and common law duties to the corporation. These include two overarching duties: the fiduciary duty and the duty of care. The fiduciary duty requires directors to act honestly, in good faith, and in the best interests of the corporation, rather than for personal gain. The duty of care requires directors to exercise care, diligence, and skill consistent with that of a reasonably prudent person in comparable circumstances.

Where directors and officers actively participate in a wrongful act, authorize infringing conduct, or fail to stay informed, they may be personally liable. Courts assess whether a reasonably prudent person in similar circumstances would have acted differently. Where the answer is yes, directors’ liability may follow.

Criminal Charges

Trademark offences can give rise to criminal consequences under Canadian law. Directors and officers may face personal liability if they direct, authorize, or knowingly permit infringing conduct. In such cases, the director knew or ought to have known that the conduct constituted a breach of the law.

Criminal liability often turns on whether directors and officers acted in good faith and whether they took reasonable steps to prevent the wrongful act. A failure to act honestly, or to stay informed about ongoing infringement, can expose individuals to prosecution.

Courts, including the Supreme Court, have emphasized that directors’ liability in criminal matters depends on the individual’s conduct and level of control within the corporation. Where negligence or intentional misconduct is proven, individuals can be held personally liable.

Civil Liability

Civil legal claims for trademark infringement frequently name both the corporation and its directors and officers. While the corporation is primarily liable, individuals may face personal liability if they are found to have participated in or directed the infringing conduct.

Directors and officers may be held liable where there is evidence of negligent acts, lack of diligence, or failure to fulfill their obligations. Courts assess whether the individual met the standard of a reasonably prudent person acting in comparable circumstances.

In some cases, directors may be found personally liable and even severally liable alongside the corporation. This means plaintiffs can recover damages from either the corporation or the individuals. Directors’ liability often arises where the court found that the individual’s conduct constituted a breach of fiduciary duty or duty of care.

Piercing the Corporate Veil in Intellectual Property Cases

Although the corporate veil generally shields directors from liability, courts may pierce the corporate veil in exceptional circumstances. This occurs where the corporation is used to facilitate a wrongful act, evade legal obligations, or secure personal gain.

The doctrine recognizes that while corporations and shareholders are separate entities, that separation cannot be abused. Where a corporate director uses the corporation as a vehicle for misconduct, the court may disregard the corporation’s separate legal personality and hold the individuals behind the company responsible for the resulting harm.

Canadian courts, including the Superior Court, have confirmed that piercing the corporate veil is fact-specific. Where directors and officers act in bad faith or fail to act honestly, they may be held personally liable.

Examples of Personal Exposure

Directors and officers may face personal liability in a variety of circumstances, including:

• Authorizing or directing trademark infringement.
• Failing to disclose material information relating to infringing activities.
• Ignoring warnings or failing to stay informed about ongoing violations.
• Participating in negligent acts that lead to infringement.
• Allowing the corporation to continue a breach despite known risks.

In some cases, courts have found individuals personally liable where the decision making process was flawed or where the directors failed to act in the best interests of the corporation. A controlling shareholder who is also a corporate director may face heightened scrutiny.

Risks for Business Owners and Directors

The risk of personal liability extends beyond intellectual property. Directors and officers may also face liability for unpaid wages, vacation pay, employee wages, unpaid taxes, and employee source deductions. Failures in tax compliance or environmental harm can also trigger liability.

Directors’ liability arises where individuals fail to meet their duties, including the duty of care and fiduciary duty. Where there is negligence, breach, or failure to act honestly, individuals may face liability in their personal capacity.

In certain cases, directors and officers may be held liable or even severally liable for corporate obligations. This includes circumstances involving unpaid wages or unpaid taxes, where statutes impose direct obligations on directors.

Risk Mitigation Strategies for Business Owners

To avoid liability, directors and officers should adopt proactive risk management practices:

• Stay informed about the corporation’s operations and legal compliance.
• Ensure decisions are made in good faith and in the best interests of the corporation.
• Follow a documented and reasonable decision making process.
• Seek professional advice when addressing complex legal issues.
• Implement internal controls to prevent wrongful acts or infringement.
• Ensure proper oversight of tax compliance and employee source deductions.

Reliance on the business judgment rule can protect directors’ liability where decisions are made prudently, in good faith, and with appropriate diligence. Courts will defer to decisions that reflect the conduct of a prudent person acting in similar circumstances.

Defence Considerations When Directors Are Named

When directors and officers are named in legal claims, several defences may be available. Demonstrating that the individual acted honestly, in good faith, and in the interests of the corporation is central.

Evidence that the director exercised care, diligence, and skill, relied on professional advice, and followed a sound decision-making process can be critical. Courts will assess whether the director met the standard of a reasonably prudent person in comparable circumstances.

Defences may also focus on lack of involvement, absence of negligence, or the fact that the individual did not authorize the wrongful act. Where appropriate, arguments may be made to preserve the corporate veil and prevent findings that individuals should be held personally liable.

Contact Experienced Defence Counsel

Given the complexity of directors’ liability and the serious consequences of trademark offences, early legal guidance is essential. Directors and officers facing potential liability should seek advice to assess their exposure and develop a strategic defence.

At Chand & Co., our experienced lawyers can assist in navigating legal obligations, responding to claims, and minimizing risk. Whether addressing allegations of breach, negligence, or fiduciary duty, timely and informed representation is key to protecting both the corporation and its directors.