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The Second Opinion: A Defamation Claim without “Merit” — The BCCA Shields Directors from Liability for Statements made as part of Continuous Corporate Disclosure

A Commentary on Recent Legal Developments by the Opinions Group of McCarthy Tétrault LLP

Posted in The Second Opinion
Anthony Alexander

Public corporations are required by law to provide continuous disclosure of information likely to be relevant to existing or potential shareholders.  The directors of such corporations must be careful to ensure that such disclosure is timely and accurate, and that it cannot be characterized as misleading.  In recent years, corporate press releases, issued in order to comply with this continuous disclosure obligation, have been the subject of considerable litigation, most notably securities class actions.  In dismissing a claim alleging that such a press release was defamatory, a recent ruling of the British Columbia Court of Appeal — Merit Consultants International Ltd. v. Chandler, 2014 BCCA 121 — should be hailed for providing some protection to corporate directors in the fulfilment of their continuous disclosure duties.

A dispute between a mining corporation and a construction manager led to the termination of the manager’s contract.  The manager then sued both the mining corporation and its parent company.  Because the parent company was publicly listed, it was required by the Securities Act (B.C.) to notify current and prospective shareholders of the lawsuit.  It fulfilled this continuous disclosure obligation by issuing a press release, in which it noted that it intended to bring a counterclaim against the construction manager for negligence and breach of contract.

The proposed counterclaim against the construction manager was instigated — without any allegations of negligence — but did not proceed because both the mining corporation and its parent company entered CCAA protection.

Although the construction manager’s claim against the two entities was stayed by the CCAA, it commenced a fresh action against the directors of the parent company personally, arguing that the contents of the press release — asserting an intention to sue the construction manager for “negligence” — was defamatory and had caused injury to the manager’s reputation.

The Court of Appeal affirmed the trial judge’s ruling dismissing the defamation action against the directors.

First, the Court agreed that the directors themselves could not be said to have “published” the news release, as their actions did not fall within the categories of conduct justifying the imposition of personal liability on directors for the actions of a corporation:

[23]         Without attempting to reconcile all the case law, it seems to me that the case at bar lies at the far ‘no liability’ end of the spectrum of directors’ personal liability. No “independent” or “personal” tort was pleaded and no allegation was made that the Directors had acted other than bona fide in the best interests of Redfern and Redcorp. More importantly, it cannot be said on the evidence before the Court that the conduct of the Directors exhibited a “separate identity or interest” from that of the companies; that there was some activity that took the Directors “out of the role of directing minds of the corporation”, as referred to in [ScotiaMcLeod Inc. v. Peoples Jewellers Ltd. (1995) 129 D.L.R. (4th) 711 (Ont. C.A.)] at 720; nor that the conduct complained of consisted of physical injury, property damage or nuisance as referred to in [ADGA Systems International Ltd. v. Valcom Ltd. (1999) 168 D.L.R. (4th) 351 (Ont. C.A.) leave to appeal refused [1999] S.C.C.A. No. 124] at para. 26, or fraud or dishonesty, as referred to by Professors P. Burns and J. Blom in Economic Interests in Canadian Tort Law (2009) at 76. (See also ScotiaMcLeod, supra, and Kepic v. Tecumseh Road Builders (1987) 18 C.C.E.L. 218 (Ont. C.A.).)

Secondly, and in any event, the making of the statements found in the press releases was protected by qualified privilege:

[29]         Qualified privilege, however, is not limited to the contents of documents filed in judicial or quasi-judicial proceedings. As Brown writes…, the privilege protects a communication made by a person “in the discharge of some public or private duty, or for the purpose of pursuing or protecting some private interest, provided it is made to a person who has some corresponding interest in receiving it.” As Brown also observes, the privilege does not extend to statements that go beyond the “exigency of the occasion”…and offers protection only where the communication is “reasonably necessary to achieve the purpose for which the privilege is given.” ….

The parent company had been legally obligated to disseminate information regarding the construction manager’s lawsuit, and its current and prospective shareholders had a parallel right to receive such information.  The Court rejected the argument that the privilege extended only to announcing the commencement of the manager’s lawsuit, and did not protect the accompanying news that the company intended to counterclaim.

The BCCA reversed the trial judge only on the issue of costs, finding that the construction manager’s conduct was insufficiently “reprehensible” to justify an award of special costs.

The McCarthy Tétrault Opinions Group consists of members of the firm’s litigation department whose practices focus on written advocacy and the provision of strategic advice and opinions in the context of complex business disputes and transactions. The members of the Opinions Group are Anthony Alexander, Martin Boodman, Brandon Kain, Hovsep Afarian and Kirsten Thompson.