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Corporations - Corporate Attribution
MORE CASES
Part 2
. Scott v. Golden Oaks Enterprises Inc.
In Scott v. Golden Oaks Enterprises Inc. (SCC, 2024) the Supreme Court of Canada dismissed a civil litigation appeal, here where the main question was "how the common law doctrine of corporate attribution should be applied to a “one-person” corporation controlled by its sole officer, shareholder, and directing mind".
Here the court considers the 'public interest' discretionary element of corporate attribution, by examining how the purposes of both the Ontario limitations regime and the federal BIA would be served, in light of this case's facts:[75] As this Court noted in Aquino, “courts have discretion to refrain from attributing the actions, knowledge, state of mind, or intent of the directing mind to the corporation when this would be in the public interest, in the sense that it would promote the purpose of the law under which attribution is sought” (para. 82(c); see also Livent, at para. 104; DeJong, at para. 2). Here, the appellants seek to attribute Mr. Lacasse’s knowledge to Golden Oaks to trigger the discoverability rule under the Limitations Act, 2002 so as to bar the trustee’s claims under the BIA. There are two relevant laws engaged, and it is necessary to consider whether attribution would promote the purpose of each.
[76] The purpose of the Limitations Act, 2002, like other modern limitations statutes, is to balance the interests of plaintiffs and defendants by promoting the established certainty, evidentiary, and diligence rationales underlying limitation periods (Canadian Imperial Bank of Commerce v. Green, 2015 SCC 60, [2015] 3 S.C.R. 801, at para. 57; Novak v. Bond, 1999 CanLII 685 (SCC), [1999] 1 S.C.R. 808, at paras. 64-67). The certainty rationale seeks “to promote accuracy and certainty in the adjudication of claims”; the evidentiary rationale seeks “to provide fairness to persons who might be required to defend against claims based on stale evidence”; and the diligence rationale seeks “to prompt persons who might wish to commence claims to be diligent in pursuing them in a timely fashion” (Green, at para. 57, citing P. M. Perell and J. W. Morden, The Law of Civil Procedure in Ontario (2nd ed. 2014), at p. 123).
[77] More specifically, the purpose of discoverability rules, such as s. 5(1)(a) of the Limitations Act, 2002, is “to avoid the injustice of precluding an action before the person is able to raise it” (Peixeiro v. Haberman, 1997 CanLII 325 (SCC), [1997] 3 S.C.R. 549, at para. 36, per Major J.; see also Grant Thornton LLP, at para. 29).
[78] In this case, attributing Mr. Lacasse’s knowledge to Golden Oaks would undermine the purpose of the discoverability rules of the Limitations Act, 2002. It would preclude Golden Oaks’ claims, even though, realistically, the company was not able to advance them before the trustee was appointed and the limitation period had expired. Mr. Lacasse had no interest in suing the appellants on behalf of Golden Oaks while he was solely in charge of the corporation. This would have exposed the Ponzi scheme he had orchestrated and from which he was profiting. As a practical matter, a lawsuit could only have been brought by the trustee, which was only after the trustee was appointed. As a result, attributing Mr. Lacasse’s knowledge to Golden Oaks would create an injustice by making the trustee’s claims statute-barred before the trustee was even able to assert them.
[79] The main purposes of the BIA are the equitable distribution of the bankrupt’s assets among its creditors and the bankrupt’s financial rehabilitation (Orphan Well Association v. Grant Thornton Ltd., 2019 SCC 5, [2019] 1 S.C.R. 150, at para. 67; Alberta (Attorney General) v. Moloney, 2015 SCC 51, [2015] 3 S.C.R. 327, at para. 32; Husky Oil Operations Ltd. v. Minister of National Revenue, 1995 CanLII 69 (SCC), [1995] 3 S.C.R. 453, at para. 7; Poonian v. British Columbia (Securities Commission), 2024 SCC 28, at para. 1; Aquino, at para. 36). Other objectives of the BIA include preserving and maximizing the value of a debtor’s assets and protecting the public interest (9354-9186 Québec inc. v. Callidus Capital Corp., 2020 SCC 10, [2020] 1 S.C.R. 521, at para. 40; Aquino, at para. 36).
[80] In this case, attributing Mr. Lacasse’s knowledge to Golden Oaks would undermine the purposes of the BIA. Attribution would allow the appellants to retain the proceeds of their wrongful conduct and reduce the value of the debtor’s assets available for distribution to other creditors. As the Court of Appeal noted, attribution would “lead to the perverse outcome of saving the appellants from the consequences of their collection of usurious interest, as well as depriving the trustee of a civil remedy that would inure solely for the collective benefit of legitimate creditors” (para. 57). This would not be in the public interest.
[81] As a result, the Court of Appeal appropriately exercised its discretion to refuse to attribute Mr. Lacasse’s knowledge to Golden Oaks because this would not have promoted the purposes of the laws under which attribution was sought. . Scott v. Golden Oaks Enterprises Inc.
In Scott v. Golden Oaks Enterprises Inc. (SCC, 2024) the Supreme Court of Canada dismissed a civil litigation appeal, here where the main question was "how the common law doctrine of corporate attribution should be applied to a “one-person” corporation controlled by its sole officer, shareholder, and directing mind":[9] I would dismiss the appeal. As this Court noted in Aquino v. Bondfield Construction Co., 2024 SCC 31, at para. 1, the corporate attribution doctrine “provides guiding principles for when the actions, knowledge, state of mind, or intent of the directing mind of a corporation may be attributed or imputed to the corporation”. The attribution doctrine must be applied purposively, contextually, and pragmatically to give effect to the policy of the law under which attribution is sought (paras. 56, 64, and 82). In my view, the same principles apply to one-person corporations. These principles provide sufficient flexibility to address most if not all situations of corporate attribution, including for one-person corporations. Moreover, accepting the appellants’ argument that the knowledge of a sole directing mind must always be attributed to the corporation would effectively disregard the bedrock principle of corporate separateness.
[10] In this case, the Court of Appeal properly exercised its discretion to decline to attribute Mr. Lacasse’s knowledge to Golden Oaks because attribution of that knowledge would undermine the purposes of the limitations and bankruptcy provisions at issue. Attribution would create an injustice by precluding the trustee’s claims to recover the unlawful payments before the trustee was even able to assert them. It would also allow the appellants to retain the proceeds of their wrongful conduct of entering into illegal agreements and reduce the value of the debtor’s assets available to the other creditors in bankruptcy. I would also dismiss the remaining grounds of appeal.
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(a) Guiding Principles of Corporate Attribution
[62] As I noted in Aquino, “[t]he common law doctrine of corporate attribution provides guiding principles for when the actions, knowledge, state of mind, or intent of the directing mind of a corporation may be attributed or imputed to the corporation” (para. 1). In Aquino, I reviewed this Court’s corporate attribution decisions in Canadian Dredge, Livent, and DeJong and persuasive authority from the United Kingdom, and summarized the guiding principles for the common law corporate attribution doctrine under Canadian law as follows:(a) As a general rule, a person’s fraudulent acts may be attributed to a corporation if two conditions are met: (1) the wrongdoer was the directing mind of the corporation at the relevant times; and (2) the wrongful actions of the directing mind were performed within the sector of corporate responsibility assigned to them (Canadian Dredge, at pp. 681-82; Livent, at para. 100).
(b) Attribution will generally be inappropriate when: (1) the directing mind acted totally in fraud of the corporation (the fraud exception); or (2) the directing mind’s actions were not by design or result partly for the benefit of the corporation (the no benefit exception) (Canadian Dredge, at pp. 712-13; Livent, at para. 100).
(c) In addition to the fraud and no benefit exceptions, courts have discretion to refrain from attributing the actions, knowledge, state of mind, or intent of the directing mind to the corporation when this would be in the public interest, in the sense that it would promote the purpose of the law under which attribution is sought (Livent, at para. 104; DeJong, at para. 2).
(d) In all cases, courts must apply the common law corporate attribution doctrine purposively, contextually, and pragmatically. The corporate attribution doctrine is not a “standalone principle” (Livent, at para. 97); there is no one-size-fits-all approach. The court must always determine whether the actions, knowledge, state of mind, or intent of a person should be treated as those of the corporation for the purpose of the law under which attribution is sought (Livent, at paras. 102-3). This may require the court to tailor the general rule of attribution or its exceptions to the particular legal context. Attribution may be appropriate for one purpose in one context but may be inappropriate for another purpose in another context. [para. 82] [63] In Livent, this Court had decided to “leave for another day” whether the same approach to corporate attribution should be taken in the context of a one-person corporation when the directing mind is the sole director and shareholder (para. 104). That question arises in this case, because Mr. Lacasse was the sole directing mind, shareholder, and director of Golden Oaks.
(b) The Same Principles Apply to One-Person Corporations
[64] The appellants argue that this Court should adopt a different approach to corporate attribution for one-person corporations. They say that the corporate attribution doctrine is “superfluous” in such cases because “the corporation and sole directing mind are de facto alter egos of one another” and are “indistinguishable” (A.F., at paras. 67, 70-71 and 76, citing Stone & Rolls Ltd. v. Moore Stephens, [2009] UKHL 39, [2009] 1 A.C. 1391). In a one-person corporation, the appellants claim, “the sole director and shareholder cannot be committing a fraud on the corporation” (A.F., at paras. 67 and 72, citing 373409 Alberta Ltd. (Receiver of) v. Bank of Montreal, 2002 SCC 81, [2002] 4 S.C.R. 312). For the same reason, the appellants assert that the judicial discretion not to attribute the knowledge of a directing mind to a corporation should never apply in the case of a one-person corporation.
[65] I do not accept these submissions. There is no principled basis to apply different guiding principles for corporate attribution to one-person corporations. As this Court explained in Aquino, the principles of corporate attribution must always be applied purposively, contextually, and pragmatically, having regard to the purpose of the law under which attribution is sought (paras. 56, 64 and 82). Those principles provide sufficient flexibility to deal with most if not all situations of corporate attribution, including for one-person corporations. Moreover, accepting the appellants’ argument that the knowledge of a sole directing mind must automatically be attributed to the corporation would effectively disregard the bedrock principle of corporate separateness. Even one-person corporations have an existence that is separate from that of their sole owner and directing mind.
[66] Nor am I persuaded that the authorities cited by the appellants warrant a different approach for one-person corporations. The appellants cite this Court’s decision in 373409 Alberta Ltd. as holding that a directing mind cannot commit a fraud against a one-person corporation. The appellants misinterpret that decision, which dealt with corporate authority, not corporate attribution. The sole shareholder and directing mind of two corporations (companies A and B) had altered a cheque payable to company A by adding company B as a payee and depositing the cheque in company B’s account. The bank accepted the cheque for deposit in company B’s account and the funds were later withdrawn. A receiver and manager of company A brought a claim in conversion against the bank for accepting the cheque for deposit. This Court held that the bank was not liable in conversion because the directing mind had corporate authority to deposit the cheque made payable to company A into company B’s account. Applying Canadian Dredge, the Court concluded that the action of the directing mind was not in fraud of company A, since the directing mind had full authorization as sole shareholder and director of company A to act as he did (paras. 22-23). This decision does not stand for the proposition that a sole directing mind can never commit a fraud against a one-person corporation.
[67] The appellants also cite the House of Lords’ decision in Stone & Rolls as suggesting that a one-person corporation must always be imputed with the knowledge of its directing mind. The appellants’ view finds some support in the speech of Lord Walker in Stone & Rolls, who concluded that “one or more individuals who for fraudulent purposes run a one-man company . . . cannot obtain an advantage by claiming that the company is not a fraudster, but a secondary victim” (para. 174). The Supreme Court of the United Kingdom would later note that Stone & Rolls was interpreted by some as establishing “a rule of law that the dishonesty of the controlling mind in a ‘one-man company’ could be attributed to the company . . . whatever the context and purpose of the attribution in question” (Singularis Holdings Ltd. v. Daiwa Capital Markets Ltd., [2019] UKSC 50, [2020] A.C. 1189, at para. 33).
[68] However, the Supreme Court of the United Kingdom has now repudiated this view and has embraced a purposive, contextual, and pragmatic approach to corporate attribution akin to the Canadian approach.
[69] In Bilta (UK) Ltd. v. Nazir, [2015] UKSC 23, [2016] A.C. 1, Lord Neuberger wrote that, subject to certain caveats, Stone & Rolls should be “put on one side in a pile and marked ‘not to be looked at again’” (para. 30, citing In re King, [1963] Ch. 459, at p. 483, per Lord Denning M.R. (in another context)). Lords Toulson and Hodge similarly questioned the precedent set by Stone & Rolls, observing that the case had “no majority ratio decidendi” (para. 154).
[70] A few years later, the Supreme Court of the United Kingdom revisited this issue in Singularis and unequivocally rejected the view that one-person corporations should be subject to an automatic rule of attribution. Speaking for the court, Lady Hale noted that Stone & Rolls had “prompted much debate and criticism” (para. 30). She held that “there is no principle of law” that the fraudulent conduct or knowledge of a director of a one-person corporation should always be attributed to the corporation (para. 34). Instead, she ruled, “the answer to any question whether to attribute the knowledge of the fraudulent director to the company is always to be found in consideration of the context and the purpose for which the attribution is relevant” (para. 34, citing the trial judge in the case, [2017] EWHC 257 (Ch), [2017] 2 All E.R. (Comm.) 445, at para. 182). She emphasized that even one-person corporations “have their own legal existence and personality separate from that of any of the individuals who own or run them” and that “a sole shareholder can steal from his own company” (para. 37). Lady Hale concluded that because the context and purpose of relevant law under which attribution is sought is now the guiding principle in questions of corporate attribution, “Stone & Rolls can finally be laid to rest” (para. 34; see also J. C. Fisher, “The ‘one man company’ after Patel v Mirza: attribution and illegality in Singularis Holdings v Daiwa Capital Markets” (2020), 71 N.I.L.Q. 387).
[71] I agree that there is no rule that the knowledge or state of mind of the directing mind of a one-person corporation must invariably be imputed to the corporation. Context and purpose always serve as the primary considerations. The guiding principles for corporate attribution outlined in Aquino apply to all corporations, including one-person corporations. . Canadian Pacific Railway Company v. Teamsters Canada Rail Conference
In Canadian Pacific Railway Company v. Teamsters Canada Rail Conference (Fed CA, 2024) the Federal Court of Appeal allowed an appeal from a finding of civil contempt, here in relation to a railway labour arbitration award.
Here the court considers the corporate 'directing mind' doctrine:Intent of corporations in civil contempt
[51] Ascribing intent to a corporation, especially a large one, is a difficult task. The directing mind doctrine provides a middle ground between vicarious liability (imposing blanket liability on corporations for the criminal acts of their employees acting in the scope of their employment), and criminal liability only attaching to a corporation if its board of directors directs the criminal act (Canadian Dredge at 675 and 692-693).
[52] The directing mind doctrine has been applied to corporations in the context of civil contempt, usually in the context of closely held corporations: see, for example, Caledon (Town) v. Darzi Holdings Ltd., 2022 ONCA 807, 2022 W.C.B. 1886 at paras. 1-2; College of Optometrists of Ontario v. SHS Optical Ltd., 2006 CanLII 39463 (ONSC), [2006] O.J. No. 4708 at paras. 2 and 19, aff’d 2008 ONCA 685, [2008] O.J. No. 3933; Red Rhino at para. 28; Canadian Standards Association v. P.S. Knight Co. Ltd., 2021 FC 770, 186 C.P.R. (4th) 102 at paras. 58-59 and 66; Roynat Inc. v. 1664092 Ontario Inc., 2014 ONSC 2778, 114 W.C.B. (2d) 286 at paras. 32-33; Peach Films Pty. Ltd. v. Cinemavault Releasing Inc., 2008 CanLII 48815 (ONSC), 79 W.C.B. (2d) 32 at para. 25; and Trans-High Corp. v. Hightimes Smokeshop and Gifts Inc., 2015 FC 919, 134 C.P.R. (4th) 222 at paras. 3 and 6.
[53] For closely held corporations, intent is simple to establish. The person who committed the act that breached the order will often necessarily be the directing mind of the corporation. In such cases, the intent analysis is typically perfunctory, as a conclusion regarding intention is self-evident from the actions of the senior officers.
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