The “Corporate Veil” and
Crown Agencies
Dermot Muir, General Counsel
Infrastructure Ontario
November ●, 2012
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Purpose of Presentation
A. What is the current state of the law regarding when
Courts will “pierce the corporate veil” to find individual
directors liable for the conduct of the corporation?
B. What benefits flow from designating entities as
Crown agencies?
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Current State of the Law
• Three cases were heard by the Ontario Court of Appeal
in the 1990s on the issue of lifting the corporate veil and
finding directors liable:
– ScotiaMcLeod Inc. v. Peoples Jewellers Ltd., [1995]
O.J. No. 3556 (C.A.)
– Normart Management v. West Hill Redevelopment
Co., [1998] O.J. No. 391 (C.A.)
– ADGA Systems International Ltd. v. Valcom Ltd.,
[1999] O.J. No.27 (C.A.).
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The ADGA Trilogy Describes The Current State of the Law on
Piercing the Corporate Veil
Justice Carthy in ADGA Systems, quoting Justice
Finlayson from Scotia McLeod stated:
in the absence of allegations of fraud, deceit,
dishonesty, or want of authority on the part of the
officers, directors, or employees of the organization,
“officers or employees of limited companies are
protected from personal liability unless it can be
shown that their actions are themselves tortious or
exhibit a separate identity or interest from that of the
company so as to make the act or conduct
complained of their own.”
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Recent Cases since ADGA
Dale v. Toronto Real Estate Board, [2012] O.J. No. 215 (S.C.J.)
• Claim against individual defendants allowed to proceed as claims
were properly pleaded
• However, Justice Campbell emphasized that:
“in the absence of allegations of fraud, deceit, dishonesty, or want of
authority on the part of the officers, directors, or employees of the
organization, such individuals are protected from personal liability
‘unless it can be shown that their actions are themselves tortious’ or
‘exhibit a separate identity or interest from that of the company’ so
as to render the impugned conduct ‘their own.’ Indeed, courts must
be scrupulous in ‘weeding out’ claims not properly advanced
personally against officers and directors as, without this increased
degree of scrutiny, there would be a risk that officers and directors
would be driven away from corporate business by potential
exposure to ill-founded litigation (para. 44).”
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Recent Cases Since ADGA
Richards v. Media Experts M.H.S. Inc., [2012] O.J. No. 2934
(S.C.J.)
• plaintiff’s claim against individual defendant struck on basis
that plaintiff’s employment contract contained exclusion
clause, which the individual defendant was entitled to rely
upon:
“where liability is limited by contract and one of the
contracting parties is a corporation, there is no valid
reason for denying the benefit of the clause to employees
who perform the contractual obligations (para.24).”
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Recent Case Law from the UK
• If the Court pierces the corporate veil, can
another party be found to be the real party
to the contract?
See: VTB Capital Inc. v. Nutritek
International Corp. [2012] EWCA Civ
808
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Crown Agents and Crown Immunity
• Designating entities as Crown agents confers the benefit
of Crown immunity upon these entities
• Crown immunity at common law whittled away by courts
• However, governments can counter this by conferring
Crown immunity through legislation
E.g. Proceedings Against the Crown Act, R.S.O.
1990, ch.P.27 (“PACA”)
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Conferring Crown Agency Status Through
Legislation
• Courts reluctant to recognize Crown agency status as this
concept offends principle of equality before the law (Peter
Hogg and Patrick Monahan in Liability of the Crown, 4th ed. (2011),
p.468)
• Crown agent status conferred through statute has been held
to be determinative (R. v. Eldorado Nuclear, [1983] 2 S.C.R. 551
(S.C.C.)).
• HOWEVER, Crown agent status can be lost if the entity:
– acts outside scope of its statutory purpose (CBC v. the Queen,
[1983] 1 S.C.R. 339 (S.C.C.); Eldorado Nuclear, supra, British
Columbia Power Corporation Ltd. v. Attorney-General, (1962), 34
D.L.R. (2d) 25 (B.C.C.A.))
– is not acting as Crown agent in the course of performing the
impugned conduct (R. v. Campbell, [1999] 1 S.C.R. 551)
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Regulating Liability of Crown Agencies in Tort Through
Legislation
• Crown agent only liable for direct tortious conduct – e.g.
where the tortious conduct ordered by BOD or officer of
corporation.
• Under common law, corporate Crown agent cannot be
vicariously liable for individual employees as it is in same
position as individual Crown servant in relation to the Crown;
both individual and corporate Crown servants are Crown
employees, rather than an employee of one by the other
(Hogg and Monahan, p.476).
• But Crown can change this by providing in the enabling
statute to allow corporate Crown agent to employ individuals
on its own behalf and declare that such employees are not
employees, officers or servants of HMQ (Hogg and Monahan,
pp.476-477).
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Regulating Liability of Crown Agencies in Tort
Through Legislation
• Under common law, when corporate Crown agent can be
sued, so can the Crown (Hogg and Monahan, p.477),
– corporate Crown agent deemed to be in same position as
individual Crown servant.
• Common law position can be varied by statute:
– E.g. “Nothing in this Act . . . subjects the Crown to a
proceeding under this Act in respect of a cause of action
that is enforceable against a corporation or other agency
of the Crown . . . (section 2(2)(b) of PACA).”
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Dumoulin v. Her Majesty the Queen in Right of Ontario, Ontario Realty
Corporation et al., (2004) 71 O.R. (3d) 556 (S.C.J.).
• First case to consider section 2(2)(b) of PACA
at length
• Facts: the plaintiff claimed damages as a result
of being exposed to noxious substances in a
court building maintained by the Crown
agency and the Crown (para. 2). The Crown
moved to strike the claim against itself on the
basis of section 2(2)(b) of PACA.
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Dumoulin v. Her Majesty the Queen in Right of Ontario, Ontario Realty
Corporation et al., (2004) 71 O.R. (3d) 556 (S.C.J.).
Justice Cullity held:
• “scope of section 2(2)(b) is not clear (para. 19).”
• Section 2(2)(b) means immunity from liability, rather
than procedural immunity
• Provision refers to immunity for the Crown for a “cause
of action that is enforceable against a corporation”
• Therefore, liability of the corporation must be
determined before liability against the Crown can be
addressed
• Declined on this basis to strike the claim against the
Crown (paras. 28-29).
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Toronto (City) v. Longbranch Child Care, (2011) 2011
CarswellOnt 1058 (S.C.J.)
• Toronto sues daycare for failure to comply with order
to disburse funds from Toronto in accordance with
pay equity scheme funded by Ontario
• Defendant added Ontario as defendant by
counterclaim, asserting that Toronto is agent of the
Crown and Crown has obligation to contribute funds
to daycare’s pay equity plan
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Toronto (City) v. Longbranch Child Care, (2011) 2011
CarswellOnt 1058 (S.C.J.)
• Section 2(2)(b) of PACA considered again (but without Dumoulin,
supra, as part of the record).
• Justice Perell states that commencing claim against Crown agency
sufficient to trigger the Crown’s immunity in respect of the same
claim:
“. . . under s.2(2) of [PACA], the Crown is not subject to a proceeding
‘in respect of a cause of action that is enforceable against a ..
.agency of the Crown.’ In other words, the effect of [PACA] is to
remove the Crown’s immunity to suit that exists at common law,
but the Act does not remove Crown immunity if there is an action
enforceable against a Crown agent . . . Thus, in the case at bar, if the
Crown had notice of anything, it was that Toronto would be sued,
and if that were the case, then the Crown would not expect itself to
be sued (paras. 44-45).”
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Regulating Liability of Crown Agencies in Contract
Through Legislation
• Under common law, Crown agents not personally
liable when entering into a contract as a
representative of the Crown.
• But the enabling statute can provide that Crown
agents can be personally liable if they enter into a
contract on their own behalf in addition to on behalf
of the principal (Hogg and Monahan, p.478)
– e.g. Yeats v. Canada Mortgage and Housing
Corporation, [1950] S.C.R. 513 (S.C.C.), where CMHC’s
enabling statute allowed it to enter into contracts in
the Crown’s name or in its own name AND stated that
CMHC was a Crown agent “for all purposes.”
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