What does due diligence mean in Canadian law?

The phrase due diligence has three different uses. The Business Development Bank of Canada says it normally refers to the care and effort a reasonable person would take to avoid harm to other persons or their property. The three uses answer different questions: whether a person can escape liability, whether a director is protected, and what a buyer should check before paying for a business. Which one applies depends on the context you are in.

As a defence to a charge

The Canadian Centre for Occupational Health and Safety describes due diligence as the level of judgement, care, prudence, determination and activity that a person would reasonably be expected to do under particular circumstances. It says due diligence is important as a legal defence for a person charged under occupational health and safety legislation. It advises employers with questions about due diligence to seek legal advice for their jurisdiction, so ask a lawyer if you face a charge.

In the Income Tax Act

Where a corporation has failed to deduct, withhold, remit or pay certain amounts, section 227.1(1) of the Income Tax Act makes the directors at the relevant time jointly and severally, or solidarily, liable, together with the corporation, subject to the rest of that section. Subsection 227.1(3) says a director is not liable where the director exercised the degree of care, diligence and skill to prevent the failure that a reasonably prudent person would have exercised in comparable circumstances.

When you buy a business

The Business Development Bank of Canada says due diligence gives crucial information on a target’s finances, prospects and legal issues, and that a lawyer can conduct legal due diligence. Here it is a buyer’s review, not a defence. Whether you must do one is a separate question, covered in is due diligence legally required, and the full process is in the complete due diligence guide.