Summary Judgment Granted to Remove Directors as Co-Defendants

In 101082401 Saskatchewan Ltd. v. Tunnels of Little Chicago Association Inc. (released October 2018), the Saskatchewan Court of Queen's Bench granted summary judgment to release the directors of a Saskatchewan not-for-profit corporation as co-defendants in an action.

1. Facts

The plaintiff and the corporate defendant, Tunnels of Little Chicago Association Inc., a non-profit corporation incorporated under the Saskatchewan Non-profit Corporations Act, 1995 (the "Saskatchewan Act") entered into an agreement in which they agreed to split some of the gate receipts from visitors to the tunnels. The agreement provided for the establishment of a reserve fund.

A dispute arose between the plaintiff and the NFP corporation over the withdrawal of a portion of the reserve fund. The plaintiff sued both the NFP corporation and each of its directors for breach of trust in relation to the withdrawals from the reserve fund. The directors of the NFP corporation applied for summary judgment so that they would be personally removed from the action

2. Rulings

Justice Brown granted summary judgment in favour of the defendant directors, letting them out of the action. He found that the pleadings failed to set out a factual basis to support the conclusion that the directors could be personally liable for the NFP corporation's handling of the reserve fund. It is one thing to assert that the corporation is a trustee of the reserve fund but another matter altogether to assert that the directors of the corporate trustee are also trustees in their personal capacities.

Specifically, the pleadings did not aver how the individual directors were implicated in any alleged corporate breach of trust.

3. Key Observations

The ruling in this case was clearly justified. There is often a tendency to add individual directors as co-defendants to put added pressure on the corporate defendant to settle the claim on terms favourable to the plaintiff.

Little Chicago illustrates the power of the defendants to counter this strategy with a summary judgment application to remove the directors as co-defendants in the action and give the defendants an early victory in the battle. Removing the directors leaves only the corporate defendant and strips the plaintiff of the added leverage it sought it naming the directors as co-defendants. In unsuccessfully defending its litigation tactic, the plaintiff incurs time and expense and must bear a portion of the costs incurred by the defendant directors in the summary judgment motion. Therefore, plaintiffs should carefully consider whether naming the directors as co-defendants is always a sound tactic.