Sunday, February 2, 2014

Piercing the Corporate Veil

Shoppers Drug Mart Inc. v. 6470360 Canada Inc. (Energyshop Consulting Inc./Powerhouse Energy Management Inc.), 2014 ONCA 85:
[43]       I agree with Shoppers that the motions judge did not refer toFleischer.  Fleischer is the appropriate test to apply to piercing the corporate veil in Ontario.  InFleischer, Laskin J.A. stated that only exceptional cases that result in flagrant injustice warrant going behind the corporate veil.  It can be pierced if those in control expressly direct a wrongful act to be done.  At para. 68, he stated:
Typically, the corporate veil is pierced when the company is incorporated for an illegal, fraudulent or improper purpose.  But it can also be pierced if when incorporated "those in control expressly direct a wrongful thing to be done": Clarkson Co. v. Zhelka at p. 578.  Sharpe J. set out a useful statement of the guiding principle inTransamerica Life Insurance Co. of Canada v. Canada Life Assurance Co.(1996), 28 O.R. (3d) 423 at pp. 433-34 (Gen. Div.), affd [1997] O.J. No. 3754 (C.A.): "the 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."
[44]       The motions judge found a misappropriation.  Black's Law Dictionary, 7th ed., at p. 1013 defines "misappropriation" as, "the application of another's property or money dishonestly to one's own use."
[45]       There can be no doubt that Beamish was the directing mind and caused the misappropriation and misrepresentation by 647 and the ensuing unjust enrichment.  He had sole signing authority over the accounts and authorized the transfer of significant amounts of money, which were supposed to be dedicated to the payment of utility bills, to an Operating Account in the names of himself and a company of which he was the sole shareholder. He expressly directed and caused the wrongful act.  Applying the correct test, in these circumstances, effect should be given to the second and third grounds of appeal.  There was an unjust enrichment and the corporate veil should be pierced.

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