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Insolvency - Corporate Attribution. Aquino v. Bondfield Construction Co.
In Aquino v. Bondfield Construction Co. (SCC, 2024) the Supreme Court of Canada extensively considers 'corporate attribution' (here in an insolvency context), and sets out a general corporate attribution summary, at para 82:[1] The 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. This Court applied the corporate attribution doctrine in the criminal context in Canadian Dredge & Dock Co. v. The Queen, 1985 CanLII 32 (SCC), [1985] 1 S.C.R. 662, and in the civil context in Deloitte & Touche v. Livent Inc. (Receiver of), 2017 SCC 63, [2017] 2 S.C.R. 855, and Christine DeJong Medicine Professional Corp. v. DBDC Spadina Ltd., 2019 SCC 30, [2019] 2 S.C.R. 530. This appeal requires the Court to apply the corporate attribution doctrine in the bankruptcy and insolvency contexts.
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[7] This Court has established that the corporate attribution doctrine is not a “standalone” principle (Livent, at para. 97); there is no one-size-fits-all approach. The corporate attribution doctrine must be applied purposively, contextually, and pragmatically to give effect to the policy goals of the law under which a party seeks to attribute to a corporation the actions, knowledge, state of mind, or intent of its directing mind. Rules of attribution that may be appropriate in one context for one purpose may be inappropriate in another context for another purpose. When the rules of attribution undermine the purpose of the law under which attribution is sought, the court should adapt the attribution rules to promote the purpose of the relevant law.
[8] In my view, the fraud and no benefit exceptions to corporate attribution do not apply in the context of a transfer at undervalue under s. 96 of the BIA. These exceptions would undermine rather than promote the purpose of this statutory provision. The purpose of s. 96 is to protect creditors from harmful actions by a debtor that would diminish the assets available for recovery. That purpose is served by attributing the actions, knowledge, state of mind, or intent of the corporation’s directing mind to the corporation, even if the directing mind acted in fraud of the corporation, and even if the corporation did not benefit from the actions of the directing mind. By contrast, applying the fraud and no benefit exceptions would deny third-party creditors a statutory remedy that Parliament intended would be available to protect them.
[9] Applying these principles to this appeal, Mr. Aquino’s fraudulent intent should be attributed to the debtor companies because he was their directing mind and acted in the sector of corporate responsibility assigned to him. I would dismiss the appeal.
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[29] The key question in this appeal is whether the trustee and monitor established Bondfield and Forma-Con’s intent to defraud, defeat, or delay a creditor under s. 96(1)(b)(ii)(B). When the debtor is a corporation, the court must determine whether the corporate debtor’s directing mind intended to defraud, defeat, or delay a creditor having regard to the transactions completed by the corporation, and then consider whether the directing mind’s intent can be attributed to the corporation. Thus, the Court must first determine whether the evidence established Mr. Aquino’s intent to defraud, defeat, or delay a creditor, and then determine whether his intent should have been attributed to Bondfield and Forma-Con. The appellants claim that the courts below erred on both points.
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[53] I therefore see no basis to interfere with the application judge’s conclusion that Mr. Aquino intended to defraud, defeat, or delay a creditor under the false invoicing scheme.
[54] Here, however, the debtors are Bondfield and Forma-Con, not Mr. Aquino. To satisfy s. 96(1)(b)(ii)(B), the trustee and monitor must show that Bondfield and Forma-Con intended to defraud, defeat, or delay a creditor. This requires showing that it is appropriate to attribute Mr. Aquino’s fraudulent intent to Bondfield and Forma-Con. I address that issue next.
B. When Can the Intent of the Directing Mind of a Corporation to Defraud, Defeat, or Delay a Creditor Be Attributed to the Corporate Debtor Under Section 96 of the BIA?
[55] The appellants contend that even if Mr. Aquino intended to defraud, defeat, or delay a creditor, his intent cannot be attributed to Bondfield and Forma-Con under the corporate attribution doctrine. They invoke the fraud and no benefit exceptions to corporate attribution recognized in this Court’s decisions in Canadian Dredge, Livent, and DeJong, and they note that the application judge found that Mr. Aquino intended to defraud both companies and the companies did not benefit from his fraud. The appellants say that this Court’s jurisprudence imposes minimal criteria for corporate attribution that must be met in every case, regardless of the context, and that the courts below erred by reframing the corporate attribution doctrine to allow for attribution in this case.
[56] I do not accept this submission. As I will explain, the corporate attribution doctrine does not prescribe rigid rules to be applied regardless of the legal context. Instead, this Court has directed that the doctrine must be applied purposively, contextually, and pragmatically to promote the purpose of the law under which attribution is sought. The fraud and no benefit exceptions to corporate attribution should not apply to a transfer at undervalue claim under s. 96 of the BIA because these exceptions would undermine the purpose of this provision. Consequently, Mr. Aquino’s fraudulent intent should be attributed to Bondfield and Forma-Con.
(1) The Need for Rules of Corporate Attribution
[57] A corporation is a separate legal person distinct from its founders, shareholders, and directors. The separate legal personality of a corporation has been a “bedrock principle of law” since the House of Lords’ seminal decision in Salomon v. Salomon & Co., [1897] A.C. 22 (Chevron Corp. v. Yaiguaje, 2015 SCC 42, [2015] 3 S.C.R. 69, at para. 80; see also S. Rappos, “A Reframing of the Corporate Attribution Doctrine in the Bankruptcy and Insolvency Context”, in J. Corraini and D. B. Nixon, eds., Annual Review of Insolvency Law 2022 (2023), 1, at p. 1).
[58] The separate legal personality of a corporation is recognized by business corporation statutes across Canada, which provide that a corporation has the capacity, rights, powers, and privileges of a natural person (see Canada Business Corporations Act, R.S.C. 1985, c. C-44, s. 15; Business Corporations Act, R.S.O. 1990, c. B.16, s. 15; Business Corporations Act, CQLR, c. S-31.1, s. 10; Business Corporations Act, R.S.A. 2000, c. B-9, s. 16(1); Business Corporations Act, S.B.C. 2002, c. 57, s. 30; The Business Corporations Act, 2021, S.S. 2021, c. 6, s. 3-1(1); The Corporations Act, C.C.S.M., c. C225, s. 15(1); Business Corporations Act, S.N.B. 1981, c. B-9.1, s. 13(1); Companies Act, R.S.N.S. 1989, c. 81, s. 26(8); Business Corporations Act, R.S.P.E.I. 1988, c. B-6.01, s. 22(1); Corporations Act, R.S.N.L. 1990, c. C-36, s. 27(1); Business Corporations Act, R.S.Y. 2002, c. 20, s. 18(1); Business Corporations Act, S.N.W.T. 1996, c. 19, s. 15(1)).
[59] Although a corporation is a separate legal person, it has no mind or will of its own. As explained by Kevin P. McGuinness and Maurice Coombs, “[e]very single act that involves a corporation, and every decision not to act, is the action or inaction of human beings and only human beings” (Canadian Business Corporations Law (4th ed. 2023), vol. 1, at ¶9-11). This has long been recognized by the jurisprudence. In Canadian Dredge, for example, this Court said that “a corporation may only act through agents” (p. 675). The Court cited Viscount Haldane L.C.’s speech in Lennard’s Carrying Co. v. Asiatic Petroleum Co., [1915] A.C. 705 (H.L.), at pp. 713-14, which explained the need to identify a directing mind because a corporation can only act through a human agent:... a corporation is an abstraction. It has no mind of its own any more than it has a body of its own; its active and directing will may consequently be sought in the person of somebody who for some purposes may be called an agent, but who is really the directing mind and will of the corporation, the very ego and centre of the personality of the corporation. [pp. 678-79] [60] Professor Darcy L. MacPherson notes that “[t]he attribution of personhood to a corporation in turn necessitates a mechanism to give that person a mental state. . . . Since so many areas of our law depend on mental states, the law must therefore attribute a mental state to the corporation” (“The Civil and Criminal Applications of the Identification Doctrine: Arguments for Harmonization” (2007), 45 Alta. L. Rev. 171, at p. 186; see also E. Ferran, “Corporate Attribution and the Directing Mind and Will” (2011), 127 Law Q. Rev. 239, at p. 241).
[61] In Meridian Global Funds Management Asia Ltd. v. Securities Commission, [1995] 2 A.C. 500 (P.C.), widely considered to be the leading United Kingdom decision on corporate attribution, Lord Hoffman discussed the need for rules of attribution this way:Any proposition about a company necessarily involves reference to a set of rules. A company exists because there is a rule (usually in a statute) which says that a persona ficta shall be deemed to exist and to have certain of the powers, rights and duties of a natural person. But there would be little sense in deeming such a persona ficta to exist unless there were also rules to tell one what acts were to count as acts of the company. It is therefore a necessary part of corporate personality that there should be rules by which acts are attributed to the company. These may be called “the rules of attribution”. [p. 506] [62] The rules of attribution, Lord Hoffman elaborated, can arise from three sources: (1) primary rules of attribution, contained in a corporation’s statutes or constitution, or general company law, stipulating when decisions taken by shareholders or the board of directors are to be treated as decisions of the corporation; (2) general rules of attribution, such as under the law of agency or vicarious liability, which also apply to natural persons; and (3) the common law of corporate attribution, which requires the court to fashion and apply a special rule of attribution for the particular context in which the question arises (Meridian, at p. 507; see also Bilta (UK) Ltd. v. Nazir, [2015] UKSC 23, [2016] A.C. 1, at para. 190, per Lords Toulson and Hodge; Singularis Holdings Ltd. v. Daiwa Capital Markets Ltd., [2019] UKSC 50, [2020] A.C. 1189, at para. 28, per Lady Hale). The last of these three sources, the common law of corporate attribution, is sometimes known as the identification doctrine because it supplies rules for when a corporation may be identified with the actions or intent of its directing mind (see Canadian Dredge, at pp. 670, 673, 682-83 and 692-93; MacPherson, at p. 172).
(2) This Court’s Corporate Attribution Jurisprudence
[63] This Court has addressed the corporate attribution doctrine in three decisions over the last 40 years: Canadian Dredge in 1985, in the context of corporate criminal liability for wrongdoing by directing minds; Livent in 2017, in the context of an auditor’s civil liability to a company’s creditors for failing to detect fraud by the company’s directing minds; and DeJong in 2019, in the context of a civil claim for knowing assistance and knowing receipt in relation to a breach of fiduciary duty.
[64] This Court’s jurisprudence, like the jurisprudence in the United Kingdom, highlights that there is no uniform rule of corporate attribution. Because the attribution doctrine is rooted in public policy, courts must take a purposive, contextual, and pragmatic approach to questions of attribution consistent with the purpose of the law under which attribution is sought.
(a) Canadian Dredge (1985)
[65] In Canadian Dredge, this Court applied the corporate attribution doctrine in the criminal context. Four corporations were found criminally liable for the mens rea offence of bid-rigging under the Criminal Code, R.S.C. 1985, c. C-46. Each corporation had a manager or directing mind who conducted the corporation’s business. The corporations denied criminal liability because the managers had acted in fraud of the corporations, for their own benefit, and outside the scope of their employment. Justice Estey rejected these arguments. He found the corporations guilty because the directing minds had not acted wholly for their own benefit and the corporations had received some benefits. He formulated a common law rule for corporate attribution (at pp. 681-82 and 712-13), which this Court later distilled in Livent, at para. 100:To attribute the fraudulent acts of an employee to its corporate employer, two conditions must be met: (1) the wrongdoer must be the directing mind of the corporation; and (2) the wrongful actions of the directing mind must have been done within the scope of his or her authority; that is, his or her actions must be performed within the sector of corporate operation assigned to him. For the purposes of this analysis, an individual will cease to be a directing mind unless the action (1) was not totally in fraud of the corporation; and (2) was by design or result partly for the benefit of the corporation. [Citation omitted.] [66] Justice Estey highlighted that the corporate attribution doctrine was developed “in order to find some pragmatic, acceptable middle ground which would see a corporation under the umbrella of the criminal law of the community but which would not saddle the corporation with the criminal wrongs of all of its employees and agents” (Canadian Dredge, at p. 701). He rejected a test for criminal liability based on total vicarious liability for the conduct of any corporate agents, whatever their level of employment and responsibility, because this would impose criminal liability when “there is neither moral turpitude nor negligence” (p. 691). This, in turn, would not serve the public policy goal of protecting the interests of the community and advancing law and order (pp. 691 and 707-8). Justice Estey also rejected a test for criminal liability that would find a corporation liable only when it commits a criminal act on the express instructions of its board of directors, because this would allow corporations to absolve themselves from criminal consequences “by the simple device of adopting and communicating to its staff a general instruction prohibiting illegal conduct and directing conformity at all times with the law” (p. 699).
[67] To respond to these policy concerns, Estey J. formulated the “fraud” and “no benefit” exceptions as public policy-based exceptions to the general principle that a directing mind’s knowledge should be attributed to a corporation to establish corporate criminal liability. The exceptions were justified, Estey J. stated, because in both situations “no social purpose is served by convicting a corporation” (Canadian Dredge, at p. 704; see also pp. 707-8). Imposing criminal liability would be unjust if the corporation is totally defrauded by, or does not benefit from, the wrongdoing of its directing mind. As Estey J. explained:The identification theory ... loses its basis in rationality when it is applied to condemn a corporation under the criminal law for the conduct of its manager when that manager is acting not in any real sense as its directing mind but rather as its arch enemy. . . . In my view, the very pragmatic origins of the identification rule militate against its extension to the situation which would have existed here had one or more of the directing minds acted entirely for his own benefit and directed his principal efforts to defrauding the company. Where the corporation benefited or was intended to be benefited from the fraudulent and criminal activities of the directing mind, the rationale of the identification rule holds. Where the delegate of the corporation has turned against his principal, the rationale fades away. [Emphasis in original; p. 719.] (b) Livent (2017)
[68] In Livent, this Court adapted the principles enunciated in Canadian Dredge to the civil context. An auditor had invoked the corporate attribution doctrine to defend against a claim brought by a corporation’s receiver for the auditor’s negligence in failing to uncover fraud by the corporation’s directing minds. The auditor argued that the fraud of the directing minds should be attributed to the corporation to give the auditor a defence of illegality to avoid civil liability to the corporation.
[69] Writing for the majority of the Court, Gascon and Brown JJ. noted that although the criteria in Canadian Dredge seemed “[a]t first glance” to be satisfied because the fraud was intended to benefit the corporation by giving it an “artificial extension of its life” (para. 101), they declined to attribute the directing minds’ wrongdoing to the corporation. They highlighted that the Canadian Dredge test was “not . . . a standalone principle”, but rather “a means by which acts may be attributed to a corporation for the particular purpose or defence at issue” (para. 97 (emphasis added)). They emphasized that “corporate identification must be analyzed independently for each defence” (para. 97). Continuing the purposive, contextual, and pragmatic approach developed in Canadian Dredge, Gascon and Brown JJ. noted that the “public policy and judicial necessity” principles that justify attributing the actions of the directing mind to the corporation in the criminal context do not apply in the context of an auditor’s negligent preparation of a statutory audit:... the very purpose of a statutory audit is to provide a means by which fraud and wrongdoing may be discovered. It follows that denying liability on the basis that an individual within the corporation has engaged in the very action that the auditor was enlisted to protect against would render the statutory audit meaningless . . . . [I]t would be perverse to deny auditor’s liability for negligently failing to detect fraud “where the harm [to the corporation] is likely to occur and likely to be most serious” . . . . [Citations omitted; para. 103.] [70] This Court in Livent added an important qualification to the “authoritative test” for corporate attribution set out in Canadian Dredge (para. 104). The Court recognized a judicial discretion not to attribute a directing mind’s actions or intent to a corporation when, in the circumstances of the case, declining attribution would be in the public interest (para. 104). The discretion reflects the rationale of the fraud and no benefit exceptions, that attribution should promote the policy of the law under which attribution is sought. Justices Gascon and Brown stated that when attribution “would render meaningless the very purpose for which a duty of care was recognized, such application [of the corporate attribution doctrine] will rarely be in the public interest” (para. 104).
(c) DeJong (2019)
[71] DeJong involved a large and complex multimillion-dollar real estate fraud involving two groups of companies that were victims of the fraud. The first group of companies sued the second group, claiming that the latter had knowingly assisted the fraudsters to commit the fraud and seeking to attribute the fraudsters’ conduct to them. A majority of the Court of Appeal for Ontario accepted the argument for attribution, reasoning that the corporate attribution doctrine “may be approached in a less demanding fashion” in the civil context than in the criminal context of a mens rea offence (DBDC Spadina Ltd. v. Walton, 2018 ONCA 60, 78 B.L.R. (5th) 183, at para. 70). In dissent, van Rensburg J.A. would have declined to relax the approach to corporate attribution, saying that she saw “no justification in the circumstances of this case to lessen the requirement for knowledge before one victim of a fraud is tagged with the conduct of a fraudster” (para. 237).
[72] Speaking for this Court, Brown J. allowed the appeal in brief oral reasons that adopted the dissenting reasons of van Rensburg J.A. Justice Brown observed that “while the presence of public interest concerns may heighten the burden on the party seeking to have the actions of a directing mind attributed to a corporation, Canadian Dredge states minimal criteria that must always be met” (DeJong, at para. 2 (emphasis in original)).
[73] The appellants interpret Brown J.’s statement that “Canadian Dredge states minimal criteria that must always be met” as effectively endorsing a mechanical rather than a purposive, contextual, and pragmatic application of the corporate attribution doctrine. They submit that a court cannot attribute the intent or acts of a fraudulent directing mind to a corporation when either the fraud or no benefit exception applies, regardless of the legal context.
[74] I would clarify the seemingly inflexible statement in this Court’s brief oral reasons in DeJong. I respectfully disagree with any suggestion that the criteria in Canadian Dredge should be applied mechanically in every case, even if they would be inconsistent with the purpose of the law under which attribution is sought. The Court’s principal concern in DeJong was to reject the suggestion that courts have an unfettered judicial discretion to relax the approach to corporate attribution based on the factual circumstances of a case. In my view, DeJong should not be read as departing from the longstanding purposive, contextual, and pragmatic approach to corporate attribution recognized in Canadian Dredge and Livent.
(3) Guidance From United Kingdom Jurisprudence
[75] In recent years, courts in the United Kingdom have similarly applied the corporate attribution doctrine in a purposive, contextual, and pragmatic manner.
[76] The modern history of the corporate attribution doctrine in the United Kingdom must begin with Meridian. There, Lord Hoffman explained on behalf of the Privy Council that rules of corporate attribution must be tailored for “the particular substantive rule” under which attribution is sought (p. 507). Lord Hoffman wrote:This is always a matter of interpretation: given that it was intended to apply to a company, how was it intended to apply? Whose act (or knowledge, or state of mind) was for this purpose intended to count as the act etc. of the company? One finds the answer to this question by applying the usual canons of interpretation, taking into account the language of the rule (if it is a statute) and its content and policy. [Emphasis in original; p. 507.] [77] Lord Hoffman added that “[o]nce it is appreciated that the question is one of construction rather than metaphysics” (p. 511), questions of corporate attribution become straightforward. The courts must always apply “an attribution rule for a particular purpose, tailored as it always must be to the terms and policies of the substantive rule” under which attribution is sought (p. 512).
[78] Lord Hoffman applied these principles in Meridian to conclude that a publicly traded corporation breached disclosure obligations under New Zealand securities legislation. He attributed to the corporation the knowledge of a lower level executive who had been responsible for obtaining a substantial interest in publicly traded securities on the corporation’s behalf. “Otherwise”, Lord Hoffman said, “the policy of the Act would be defeated”:Companies would be able to allow employees to acquire interests on their behalf which made them substantial security holders but would not have to report them until the board or someone else in senior management got to know about it. This would put a premium on the board paying as little attention as possible to what its investment managers were doing. [p. 511] [79] Professor Jennifer Payne highlights two important lessons from Meridian. The first lesson is that the special rules of attribution under the common law doctrine “do not mean that a company itself has done something or had a particular state of mind” (“Corporate Attribution and the Lessons of Meridian”, in P. S. Davies and J. Pila, The Jurisprudence of Lord Hoffman: A Festschrift in Honour of Lord Leonard Hoffman (2015), 357, at p. 375). She observes that Meridian helpfully “moved away from the anthropomorphic ‘metaphysical’ approach to company attribution towards a more context-driven approach” (p. 363). The second and related lesson is that “the issue of attribution depends on the context. It is always necessary to ask whether an act or state of mind of a particular individual should be attributed to the company for this particular purpose” (p. 375 (emphasis in original)). Professor Eilís Ferran agrees that “contextualization, rather than anthropomorphic inquiry into corporate personality, is the key to answering these questions” of corporate attribution (p. 239).
[80] Recent decisions of the Supreme Court of the United Kingdom have affirmed the approach in Meridian by applying the corporate attribution doctrine based on the context and purpose of the relevant law under which attribution is sought (see Bilta, at para. 9, per Lord Neuberger, at paras. 41-42, per Lord Mance, at para. 92, per Lord Sumption, and at para. 181, per Lords Toulson and Hodge). As Lady Hale stated succinctly in Singularis, “the key to any question of attribution [is] always to be found in considerations of the context and the purpose for which the attribution [is] relevant” (para. 30).
[81] The Supreme Court of the United Kingdom has also highlighted that because the corporate attribution doctrine must be applied purposively and contextually, a company or the court “can rely on attribution for one purpose, but disclaim attribution for another” (Bilta, at para. 43, per Lord Mance). As a result, attribution may be inappropriate in a claim by a corporation against its directors for breach of their duties to the corporation, but may be appropriate when determining the corporation’s liability to a third party or for breach of a statutory provision (see Bilta, at para. 7, per Lord Neuberger, at para. 43, per Lord Mance, at paras. 67 and 92, per Lord Sumption, and at paras. 208-9, per Lords Toulson and Hodge; Payne, at p. 376).
(4) Summary
[82] The guiding principles for the common law doctrine of corporate attribution under Canadian law can be summarized 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. ....
(5) Applying the Corporate Attribution Doctrine in the Context of Section 96 of the BIA
[84] The respondents urge this Court to apply the corporate attribution doctrine in the context of s. 96 of the BIA purposively, contextually, and pragmatically, consistent with this Court’s precedents and the persuasive authority from the United Kingdom. They argue that the fraud and no benefit exceptions to corporate attribution should not apply in the context of a claim under s. 96 of the BIA for a transfer at undervalue because applying either exception would flout the purpose of s. 96.
[85] I agree. Recall that s. 96 of the BIA is a tool to remedy asset stripping by a debtor by clawing back assets that were improperly transferred to others before bankruptcy in order to protect the pool of assets available for creditors. The issue is whether and when attributing the actions or intent of the corporation’s directing mind to a corporate debtor would promote the purpose of this provision.
[86] The remedial purpose of s. 96 of the BIA is served by attributing the actions, knowledge, state of mind, or intent of the directing mind to the corporation, even if the directing mind acted in fraud of the corporation, and even if the corporation did not benefit from the actions of the directing mind. Professor Roderick J. Wood has explained that the reason for this conclusion relates to the “highly distinctive nature of the rights at stake” (“Ernst & Young Inc. v. Aquino: Attributing Fraudulent Intent to a Defrauded Corporation” (2022), 66 Can. Bus. L.J. 250, at p. 259). As he notes, “[t]he underlying goal [of s. 96] is not to punish or deter the debtor or to award damages against the debtor, but rather to protect the interests of creditors” (p. 259). The “social purpose of the legislation . . . is served whether or not the directing mind is acting in fraud of the corporation” (p. 259).
[87] On the other hand, applying the fraud and no benefit exceptions under s. 96 would deny third-party creditors the benefit of a statutory remedy intended to protect them from asset stripping and would diminish the pool of assets available for their claims. This would undermine the purpose of s. 96.
[88] As in Livent, where this Court said that “denying liability on the basis that an individual within the corporation has engaged in the very action that the auditor was enlisted to protect against would render the statutory audit meaningless” (para. 103), applying the fraud and no benefit exceptions mechanically under s. 96 of the BIA would render the transfer at undervalue remedy meaningless. The purpose of this statutory remedy is to protect creditors from the debtor transferring assets to others for little to no benefit. Applying the exceptions would undermine this purpose. It would result in denying liability on the basis that the corporation’s directing mind engaged in the very action that the provision targets. Such an approach would be perverse.
[89] Consequently, the test for corporate attribution under s. 96 of the BIA is simply whether the person was the directing mind and whether their actions were performed within the sector of corporate responsibility assigned to them. If these criteria are met, the actions, knowledge, state of mind, or intent of the directing mind should be attributed to the corporation, regardless of whether the fraud and no benefit exceptions are engaged (see Wood (2022), at pp. 260-61).
[90] It follows that I do not accept the appellants’ submission that the principles of statutory interpretation require courts to apply the fraud and no benefit exceptions in this context. The appellants argue that because s. 96 of the BIA does not clearly and unambiguously derogate from the common law of corporate attribution, the rules in Canadian Dredge, Livent, and DeJong must be applied without modification, including the fraud and no benefit exceptions. The appellants’ submission presupposes that the common law rules of corporate attribution should be applied regardless of the context or purpose of the law under which attribution is sought, unless the legislature expressly derogates from those rules. But that is a false premise. The corporate attribution doctrine must always be applied having regard to the context and the purpose of the law under which attribution is sought. This approach has been integral to the Canadian common law of corporate attribution since Canadian Dredge.
[91] I therefore agree with the conclusion of the Court of Appeal that attributing Mr. Aquino’s fraudulent intent to Bondfield and Forma-Con would advance the public policy underlying s. 96 of the BIA. Attribution would allow creditors to recover fraudulently transferred assets that unlawfully reduced the value of the estate available for distribution to creditors. ...
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[96] As a result, I agree with the Court of Appeal’s conclusion that the fraud and no benefit exceptions to corporate attribution do not apply under s. 96 of the BIA, but I respectfully disagree with some of the court’s reasoning.
[97] In sum, the fraud and no benefit exceptions are inappropriate and inapplicable in the context of transfers at undervalue under s. 96 because these exceptions would undermine the creditor protection purpose of this provision.
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