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Author:
Karen Fields

Date:
2018.08.23

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THE EMPLOYERS' EDGE

Ouch – Piercing the Corporate Veil to Find Personal Liability in Regulatory Offence

“Piercing the corporate veil” is the judicial act of imposing personal liability on otherwise immune corporate officers, directors, and shareholders for the corporation’s wrongful acts.  In a recent and precedent-setting case against an electrical contractor, that is exactly what the court allowed.

In August 2014 charges were laid pursuant to the Electricity Act, by the Electrical Safety Authority (“ESA”) against a numbered company operating as Pro-Teck Electrical.  The results arose from a fatality.  The company, was a small owner-operated business, where the principal of the company was its only shareholder, officer and director.  The individual was not charged.  The company pled guilty to three charges before a Justice of the Peace and was fined a total of $430,000.  In September 2014, around the time that the charges were laid, the owner of the company transferred the company’s assets to himself and to a newly created electrical contracting company.  The ESA, in preparing for the sentencing hearing, sought financial information about Pro-Teck.  As a result of that inquiry the ESA asked the Justice of the Peace to “pierce the corporate veil” to hold the sole shareholder, sole officer and director personally responsible for any fines imposed.  The Justice of the Peace felt that she did not have jurisdiction to make such an Order and the ESA appealed that decision.

At the sentencing hearing, the owner/shareholder/officer, director of Pro-Teck testified that he had found new employment with the new company, which had the same address, same equipment, same personnel, same client-base, same suppliers, same shareholder, same officer and same director as Pro-Teck, the same shareholder, officer and director being himself.  The appeal judge stated that the transfers of the property, assets, vehicle etc., were transactions based on self-interest of the individual and to protect Pro-Teck’s assets from vulnerability to the penalties, thereby making the assets of Pro-Teck unavailable to the prosecution.  The appeal Justice found that the Justice of the Peace made no errors in law, except in her conclusion that she did not have the jurisdiction to pierce the corporate veil.  On appeal, the court stated that the Justice of the Peace has the power to pierce the corporate veil in appropriate, albeit narrow, circumstances due to the principle of “implied jurisdiction”.

As stated by the court – “a corporation has its own legal existence, separate and apart from its shareholders, its officers and its directors.  Unless the law, either statutory or common-law, provides otherwise, if a corporation does a wrongful act, it is the corporation that must be punished, even if it cannot be subjected to the same range of punishments that a human actor might be subjected to.”  In answer to the question, does a Justice of the Peace possess that power, the court held that the answer was yes.  The court held that the question really is whether the sentencing court should have the power to defeat an effort by a defendant to neuter the court in imposing a just and effective sentence by making that sentence unenforceable, meaningless and illusory.  Further that a Justice of the Peace must have the power to avoid a “flagrant” circumvention of justice. 

As a result, the owner of the company was held to a much higher penalty than if he had been charged personally and convicted, as the maximum fine under the Electricity Act was $50,000 per count.  The court stated that the individual’s higher penalties arises directly from his own actions.  It will be interesting to see if leave to appeal the decision will be sought.

Corporate defendants should beware that the transfer of corporate assets to avoid fine payments or “improper” transfers may open the door for a Crown in regulatory matters such as the Occupational Health and Safety Act, to seek the transfer of fines to individuals in such circumstances. Click HERE for a list of lawyers at CCPartners who can help.

Click HERE to access CCPartners’ “Lawyers for Employers” podcasts on important workplace issues and developments in labour and employment law. 

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