Directors Who Defraud: Court of Appeal for Ontario Confirms Standalone Personal Liability for Civil Fraud

In a recent decision, the Court of Appeal for Ontario confirmed that the civil fraud of a corporate director or officer can lead to personal liability, even without having to pierce the corporate veil, irrespective of whether the conduct is characterized as tortious in itself or exhibits a separate identity or interest.

Key Takeaways

• Civil fraud by a director or officer is a standalone basis for personal liability. The director or officer who commits civil fraud while purporting to act for a corporation “makes the fraud their own.”
• A director or officer who personally makes a misrepresentation while indifferent to the truth of the statement made can be found to meet the recklessness threshold for civil fraud, regardless of any good-faith intention.
• A director’s personal financial stake may invite closer scrutiny but personal liability can be found irrespective of any separate identity or interest from the corporation.
• Directors’ and Officers’ (D&O) insurers may seek to rely on fraud exclusions more readily where directors or officers make unsupported or dubious representations. Directors and officers should ensure that material assurances to counterparties have a clear factual foundation.

Personal Liability for Directors and Officers Without Piercing the Corporate Veil

Canadian law generally shields directors and officers from personal liability for acts of the corporations they serve. Liability may nevertheless arise in two circumstances: (i) where the corporate veil can be pierced and (ii) where the conduct of a director or officer independently justifies a finding of personal liability even when piercing the corporate veil is not available.

In CHU de Québec-Université Laval v Tree of Knowledge International Corp., 2026 ONCA 209, the Court of Appeal for Ontario affirmed a finding of personal liability against Tree of Knowledge International Corp. (TOKI)’s sole director and officer, Mr. Caridi, for fraudulent misrepresentation made in connection with an agreement to supply N95 masks during the COVID-19 pandemic.

In late March 2020, CHU de Québec – Université Laval (CHU) entered into an agreement with TOKI for the delivery of 3 million NIOSH-certified N95 masks. Mr. Caridi, who, the Court found, stood to personally receive 50 percent of the transaction’s profits, told CHU that TOKI could supply the masks by March 28 if CHU paid the full purchase price of over US$11 million by March 27. As it turns out, Mr. Caridi had no guarantee that he could obtain any NIOSH-certified N95 masks, let alone 3 million, by the promised deadline.

Over the following days, Mr. Caridi repeatedly assured CHU that TOKI could obtain NIOSH-certified N95 masks, despite having no factual basis for that assurance. No masks were delivered until April 9, and the masks ultimately provided were KN95 masks labelled for non-medical use, which proved worthless to CHU. Although the parties reached a repayment agreement, TOKI paid only US$2 million before ceasing payments.

Personal Liability of a Director or Officer Does Not Require Separate Identity or Interest or Conduct That Is Tortious In Itself

The Court of Appeal affirmed the finding that Mr. Caridi was personally liable for civil fraud. It held that where a director or officer commits fraud while purporting to act for the corporation, personal liability may follow regardless of whether the conduct is otherwise “tortious itself” or reflects a “separate identity or interest” from the corporation.

While the lower court relied in part on Mr. Caridi’s 50/50 profit sharing arrangement to find that his conduct reflected a “separate identity or interest” than TOKI, and likewise found that his conduct was “tortious itself,” the Court of Appeal clarified that this analysis was unnecessary: once a director or officer engages in civil fraud while purporting to act on behalf of a corporation, they “make the fraud their own.”

The Court Clarifies the Recklessness Threshold for Civil Fraud

The Court of Appeal also upheld the trial judge’s application of the recklessness standard for civil fraud. Recklessness requires a representation made without an honest belief in its truth; it is more than negligence, which may involve an honest but mistaken belief. Although the trial judge accepted that Mr. Caridi may have had honest intentions, the Court of Appeal found that making a representation while careless to its truth is sufficient to ground a finding of personal liability for fraud.

This decision is a reminder that directors and officers cannot rely on the corporate form where they personally make unsupported representations that amount to civil fraud. For boards, management teams and insurers, the practical lesson is straightforward: material statements to counterparties should be grounded in verifiable facts, particularly in high-pressure commercial circumstances.