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Legal Guide

The due diligence defence is the most common defence available to officers and directors. This defence is, generally, established where the individual can prove, on a balance of probabilities, either that he or she:

  1. a.     Reasonably believed in a mistaken set of facts that, if true, would render the conduct innocent; or
  1. b.     Took reasonable care to avoid the event giving rise to the liability.

This defence may be available under certain provisions of a variety of legislation that governs corporate activity. Note, however, that such legislation may qualify or limit the application of this defence and may require certain actions to have been taken by the person to avail himself or herself of it. For example, the due diligence defence is only available to a director under the Income Tax Act if he or she exercised the degree of care, diligence and skill to prevent the failure that a reasonably prudent person would have exercised in comparable circumstances.

Some statutory provisions, however, expressly preclude the use of a due diligence defence. Under theBusiness Corporations Act in Ontario, for example, liability for employee wages and vacation pay is an area where directors cannot rely on this defence. 
In addition, such Act prevents directors and officers of Ontario corporations from relying on the defence of due diligence in the case of a breach of their basic fiduciary duty and/or duty of care. 

There will be instances where the range of defences available to an officer diverges from those available to a director. In some cases, an officer will not be successful in using a due diligence defence due to his or her close connection to the day-to-day management of the corporation. Officers are considered to be better informed than directors, and are held to a higher standard in their reliance on false or inaccurate information.

There are a number of other situation-specific defences that may be available to directors and officers. These defences are often outlined in the statutory provisions that create the liability.

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