Board Protection Against Bad Decisions

January 2017

Directors who uphold their fiduciary responsibilities are protected against being held personally liable for the consequences of their actions. This is as it should be.

The basis of this protection appears to be many years ago in Delaware. In the US it is called the business judgement rule. Its intent is to protect corporate board members from liability for decisions they make so long as nothing criminal has occurred.

This rule has generally been applied to condo boards. Without such a rule volunteer condo boards would likely cease to exist. No individual is likely to serve as a volunteer board member if condo owners unhappy with their decisions could go to court against them and seek compensation from their personal assets.

Condo boards will make decisions that, at times, are not correct. Condo directors are protected against incorrect decisions that are not criminal.

Prior to the existence of this rule, board decisions were based on a reasonableness test. More court decisions favoured condo owners and increased costs for all parties. The rule was changed to the business judgement rule which requires that boards act with informed judgement so long as the individuals uphold their fiduciary duty. This does not protect individuals from fraud or negligence, or where they fail to uphold rules and regulations in condo documents.

Directors who fail in their fiduciary duty can be held personally liable for their actions.