Piercing the corporate veil

Today’s Court of Appeal decision in Parkland Plumbing & Heating Ltd. v. Minaki Lodge Resort 2002 Inc., 2009 ONCA 256 provides a clear restatement of the law of piecing the corporate veil:

[49]          While a corporation is a legal entity distinct from its shareholders, this principle may be disregarded by ‘lifting the corporate veil’ and regarding the company as the agent or vehicle of its controlling shareholder or parent corporation where enforcing the ‘separate entities’ principle would yield a result “too flagrantly opposed to justice”: Kosmopoulos v. Constitution Ins. Co. of Canada, [1987] 1 S.C.R. 2, at para. 12, citing L.C.B. Gower, Modern Company Law 4th ed. (London: Stevens, 1979), at p. 112.

[50]          But this does not mean that the courts enjoy ‘carte blanche’ to lift the corporate veil absent fraudulent or improper conduct whenever it appears ‘just and equitable’ to do so.  In Transamerica Life Insurance Co. of Canada v. Canada Life Assurance Co. (1996), 28 O.R. (3d) 423 (Ont. Gen. Div.), aff’d, [1997] O.J. No. 3754 (C.A.), Sharpe J. (as he then was) indicated at pp. 433-34:

[T]he courts will disregard the separate legal personality of a corporate entity where it is completely dominated and controlled and being used as a shield for fraudulent or improper conduct.  The first element, “complete control”, requires more than ownership.  It must be shown that there is complete domination and that the subsidiary company does not, in fact, function independently… .

The second element relates to the nature of the conduct: is there “conduct akin to fraud that would otherwise unjustly deprive claimants of their rights”?  [Citations omitted.]

[51]          Earlier in Transamerica, at pp. 432-33, Sharpe J. accepted the following formulation of the test for lifting the corporate veil, set out in Gower, Modern Company Law, 5th ed. (1992) at pp. 132-33:

There seem to be three circumstances only in which the courts can [lift the corporate veil].  These are:

(1)              When the court is construing a statute, contract or other document.

(2)              When the court is satisfied that a company is a “mere facade” concealing the true facts.

(3)              When it can be established that the company is an authorized agent of its controllers or its members, corporate or human.

See also, Gregorio v. Intrans-Corp. (1994), 18 O.R. (3d) 527 ( C.A. ); ScotiaMcLeod Inc. v. People Jewellers Ltd. (1995), 26 O.R. (3d) 481 ( C.A. ), leave to appeal to S.C.C. refused, [1996] S.C.C.A. No. 40; ADGA Systems International Ltd. v. Valcom Ltd. (1999), 43 O.R. (3d) 101 ( C.A. ), leave to appeal to S.C.C. refused, [1999] S.C.C.A. No. 124; Downtown Eatery (1993) Ltd. v. Ontario (2001), 54 O.R. (3d) 161 (C.A.), leave to appeal to S.C.C. refused, [2001] S.C.C.A. No. 397; 642947 Ontario Limited v. Fleischer (2001), 56 O.R. (3d) 417 (C.A.); Wildman v. Wildman (2006), 82 O.R. (3d) 401 (C.A.); Lynch v. Segal (2006), 82 O.R. (3d) 641 (C.A.), leave to appeal to S.C.C. refused, [2007] S.C.C.A. No. 84.