Haris was quite excited - Sarah, the chair of the board of directors of a small, up-and-comingCanada Business Corporations Act(the "CBCA") company, had asked him if he would like to be nominated tosit on the board of directors - the company was working on an exoskeleton that protects seniors byreducing accidental falls. Haris vaguely remembering something about directors' indemnities from his business law class (an indemnification agreement would allow a director to recover losses that aresuffered as a result of sitting on the board from the company) asked Sarah whether the company had anindemnification agreement in place for directors. Sarah said that there was an agreement in place andthatthe agreement containedthe following clause:

The company shall indemnify the directors for all losses suffered by a director for all losses suffered as aresult of a criminal or administrative action or proceeding enforced by a monetary penalty while acting inhis or her role as a director for the company.

Haris also remembered that there was something about indemnities in the most corporate legislation. Asthe company was incorporated under the CBCA, Haris performed a quick online search in Canlii andfound the following provisions in the CBCA:

Liability of directors and others

118 (3)Directors of a corporation who vote for or consent to a resolution authorizing

...

(e) a payment of an indemnity contrary to section 124, or;

...

are jointly and severally liable to restore to the corporation any amounts so paid and the value of anyproperty so distributed, and not otherwise recovered by the corporation.

Indemnification by corporation

124(1)Except in respect of an action by or on behalf of the corporation or body corporate to procure ajudgment in its favour, a corporation may indemnify a director or officer of the corporation, ... , if

(a) the director or officer acted honestly and in good faith with a view to the best interests of thecorporation, and

(b) in the case of a criminal or administrative action or proceeding that is enforced by amonetary penalty, the director or officer had reasonable grounds for believing that the

director's or officer's conduct was lawful.

Haris reviewed the material and told Sarah that he agreed to be nominated. In a very short period of timeSarah gave Haris the news - he had been elected to the board. One of the first tasks for the board was to pass a resolution that dealt with the classification of expenses - the issue was whether the expenses wereexpenses of the company or the personal expenses of the directors. As a result of passing the resolution, it was alleged that expenses were improperly classified and the company was investigated by thecommercial crimes division of the RCMP. Ultimately, the charges were dropped and the directors wereall cleared of any alleged improper conduct. As a result of the investigation, each of the directors,including Haris, incurred significant personal expenses as a result of the investigation.

(a) Discuss whether Haris would be able to relyon the indemnification agreementto recover thelosses he suffered as a result of the investigation. Include any applicable legislation in yourresponse, tie the law to the facts and draw a conclusion.

(b) Subsection 118(3) of the CBCA provides that directors may be jointly and severally liable incertain circumstances. Describe howjoint and several liabilitymay affect Haris' obligation topay the lossesif the board is found liable. Include any applicable legislation in your response,tie the law to the facts and draw a conclusion.

(c) In addition to asking about indemnification to limit his liability, discuss what Hariscould havedoneto have been duly diligentwhen making his decision as to whether or not to agree to benominated to join the board.