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Corporations - Piercing the Corporate Veil

McDowell v. Fortress Real Capital Inc. (Ont CA, 2019)

In this case, the court discussed the law of 'piercing the corporate veil':
(1) Did the motion judge err in law by striking out the personal claims against the two principals, Mr. Rathore and Mr. Petrozza, as disclosing no reasonable cause of action?

[54] The claims against the individual respondents sought to hold them responsible, as the directing minds of the Fortress Companies, for Fortress’s alleged breach of contract, breach of fiduciary duty, misrepresentation, and negligence. The motion judge followed this court’s decisions in Normart Management Ltd. v. West Hill Redevelopment Co. (1998), 1998 CanLII 2447 (ON CA), 37 O.R. (3d) 97 (C.A.), at pp. 102-3, and AGDA Systems International Ltd. v. Valcom Ltd. (1999), 1999 CanLII 1527 (ON CA), 43 O.R. (3d) 101 (C.A), leave to appeal ref’d, [1999] S.C.C.A. No. 124, at pp. 112-13, which in turn followed ScotiaMcLeod Inc. v. Peoples Jewellers Ltd. (1995), 1995 CanLII 1301 (ON CA), 26 O.R. (3d) 481 (C.A.), in holding that a director or officer of a corporation will not be personally liable for actions taken on behalf of the corporation unless some of their conduct is tortious in itself or exhibits a separate identity of interest from that of the corporation. He held that none of the four pleadings disclosed any such conduct.

[55] In ScotiaMcLeod, at pp. 490-91, Finlayson J.A. described the requirements for finding directors or officers personally liable:
The decided cases in which employees and officers of companies have been found personally liable for actions ostensibly carried out under a corporate name are fact-specific. In the absence of findings of fraud, deceit, dishonesty or want of authority on the part of employees or officers, they are also rare. Those cases in which the corporate veil has been pierced usually involve transactions where the use of the corporate structure was a sham from the outset or was an afterthought to a deal which had gone sour. There is also a considerable body of case-law wherein injured parties to actions for breach of contract have attempted to extend liability to the principals of the company by pleading that the principals were privy to the tort of inducing breach of contract between the company and the plaintiff: see Ontario Store Fixtures Inc. v. Mmmuffins Inc. (1989), 1989 CanLII 4229 (ON SC), 70 O.R. (2d) 42 (H.C.J.), and the cases referred to therein. Additionally there have been attempts by injured parties to attach liability to the principals of failed businesses through insolvency litigation. In every case, however, the facts giving rise to personal liability were specifically pleaded. Absent allegations which fit within the categories described above, 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. [Emphasis added.]

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