In FNF Enterprises Inc. v. Wag and Train Inc., 2023 ONCA 92 (“FNF Enterprises”) the Ontario Court of Appeal recently allowed a claim to proceed against an individual, as both a director and shareholder of the corporation, Wag and Train Inc. (“W&T”), that sought to hold him personally liable for the liabilities of W&T. The basis for this was under an oppression claim pursuant to Section 248 of Ontario’s Business Corporations Act, RSO 1990, c B.16 (“OBCA”), rather than a claim to pierce the corporate veil.
Background
W&T, as a respondent on the appeal, leased commercial premises from the appellants in 2015 for a defined term. In the commercial premises, W&T ran a canine grooming, training, and day care business. However, W&T abandoned the premises approximately one year before the expiry of the lease term, and failed to pay any further rent. At the same time, a similar grooming, training, and day care business was started nearby under a different name, but it was operated by the same individual, Linda Ross (“Ms. Ross”), who was also a respondent on the appeal. The appellants alleged that Ms. Ross, who is W&T’s sole director, officer, and shareholder, stripped value of the W&T and started the same business elsewhere under a new name.
A motion’s judge of the Ontario Superior Court of Justice struck out the claim on the basis that there was no cause of action against Mr. Ross and, rather, the appropriate entity to claim the loss from was W&T.
Decision
On appeal to the Ontario Court of Appeal, the Court allowed the appeal in part. Specifically, the claim against Ms. Ross for value stripping was permitted to proceed under the oppression remedy, but not under the doctrine of piercing the corporate veil.
This was on the basis that the claim to piece the corporate veil failed given the two-part test set out in Transamerica Life Insurance Co. of Canada v. Canada Life Assurance Co. (1996), 1996 CanLII 7979, which is set out in the decision as follows: “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 part of the Transamerica test requires complete domination and control of the corporate form and not just ownership and control of a corporation. The second part of the test requires fraudulent and/or improper conduct that gives rise to the liabilities that the plaintiff is trying to impose on the individual. Ultimately, in FNF Enterprises, the Court concluded that the test was not met, as there was an insufficient connection between the wrongful conduct and the liabilities that the appellants were trying to impose on Ms. Ross.
With respect to an oppression remedy claim under Section 248 of the OBCA, the Court permitted the claim to proceed on the basis that the appellant’s interest, as a landlord and creditor, were compromised as a result of Ms. Ross’s decision to strip value from W&T with full knowledge of its liability to the appellant, which is not something that it could have protected itself from.
Conclusion
Taken together, FNF Enterprises demonstrates that an individual director and shareholder of a corporation who strips value from the corporation may be found personally liable under an oppression claim. In other words, this case represents that an individual may be found personally liable for the acts and liabilities of a corporation where they direct the corporation to act oppressively for their own benefit.
Not only will FNF Enterprises have an impact on decisions in Ontario, but it will likely have an impact on decisions in Alberta as well given that Section 242 of Alberta’s Business Corporations Act, RSA 2000, c B-9 (“ABCA”) is similar to Section 248 of the OBCA. Specifically, they both require the following two requirements to succeed:
Notwithstanding this, FNF Enterprises also reinforces the high threshold for piercing the corporate veil and the strictness of the principal of corporate separateness.
Authors
Mikala A. Zubrecki, Student-at-Law and Megan B. Harris, Associate