The Ontario Court of Appeal has recently confirmed that
it will pierce the "corporate veil" where a company is
used for an "illegal, fraudulent or improper purpose".
The Court rejected the argument that the corporate veil should only
be pierced where the corporation's "comp any
structure" is used to avoid or conceal liability for an
In Shoppers Drug Mart Inc. v. 6470360 Canada Inc., 2014
ONCA 85, per Pepall J.A., the plaintiff, Shoppers Drug Mart Inc.
("Shoppers") contracted with the defendant Energyshop
Consulting Inc. ("Energyshop") to manage and pay utility
bills for Shoppers' stores on a nationwide basis (the
The individual defendant, Michael Wayne Beamish
("Beamish"), described himself as "President"
of Energyshop. At the time of the contract, Energyshop was not
incorporated. The parties never formally executed the Contract, but
both Shoppers and the defendants agreed that it was binding on
them. Several weeks after entering into the Contract, Beamish
incorporated the Defendant 6470360 Canada Inc.
Over time, bills were not being paid and late fees began to
accrue. Accordingly, Shoppers and 647 entered into a transition
agreement whereby they mutually confirmed the termination of the
contract. Shoppers then began to receive notices of default from
various utility providers in respect of outstanding invoices that,
in its view, 647 ought to have paid.
Shoppers commenced an action to recover its funds that it had
transferred to the Defendants for payment of the utility bills.
Shoppers then brought a motion against 647 and Beamish for summary
judgment seeking payment of the remaining funds that it alleged had
The motions judge granted Shoppers' summary judgment motion
against 647, but dismissed the action against Beamish personally.
In short, the motions judge held that Beamish was not personally
liable for unjust enrichment and refused to "pierce the
corporate veil" to find Beamish liable. According to the
motions judge, everything Beamish did was in his corporate capacity
and for 647's benefit. There was no asset stripping, nor were
there any fraudulent preferences. Although he was the sole
shareholder, officer and director of 647, Beamish did not share a
legal personality with the corporation. The motions judge stated
that "the corporate veil should be pierced not where a
corporation has misappropriated funds, but where the very use of
the corporation is to hide that misappropriation". Absent
evidence that the incorporation of 647 was itself done for the
purposes that are illegal or fraudulent, a court should not pierce
the corporate veil.
On the appeal of a myriad of issues, the Ontario Court of Appeal
reversed the motion judge's decision and substituted an order
granting summary judgment against Beamish personally in the amount
According to the Court of Appeal, the motions judge should have
referred to the Court's previous test in 642947 Ontario
Ltd. v. Fleischer (2001), 56 O.R. (3d) 417 (C.A.)
("Fleischer") as to when to pierce the corporate
veil in Ontario.
In Fleisher, the Court held that the corporate veil is
pierced when the company is incorporated for an illegal, fraudulent
or improper purpose. But "it can also be pierced if when
incorporated 'those in control expressly direct a wrongful
thing to be done'". The 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.
In this case, the Court of Appeal held that there was no
"doubt that Beamish was the directing mind and caused the
misappropriation and misrepresentation by 647 and the ensuing
unjust enrichment". Beamish had sole signing authority over
the accounts and authorized the transfer of significant amounts of
money, which were supposed to be dedicated to the payment of
utility bills. According to the Court, he "expressly directed
and caused the wrongful act". There was an unjust enrichment
and the corporate veil should be pierced.
Leave to appeal the Court of Appeal's decision to the
Supreme Court of Canada has been sought.
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