It is well established that a corporation has a separate legal personality distinct from that of its owners, principals, and employees. This so called corporate veil ensures that a corporation's human agents are not held personally liable for the conduct of the corporation merely because of their status as its principals. Nevertheless, in rare circumstances, and where specific conditions are met, a Court may pierce the corporate veil.
The Supreme Court of British Columbia's recent decision in Darel provides valuable clarity on the conditions that must be met for a Court to pierce the corporate veil and hold the director of a closely held corporation personally liable. Although the Court in Darel upheld the doctrine of corporate separateness, it nevertheless provides practical guidance on what a plaintiff must demonstrate if it wishes to pursue a claim against a corporate principal personally.
Below, we review the Court's decision and consider its key takeaways.
Factual Background
This case deals with dual applications to strike two notices of civil claim under Rule 9-5(1) of British Columbia's Supreme Court Civil Rules. The applicant, Mr. James Parker, was the director and officer of Tri-Parker Gallery – doing business as Le Soleil Fine Art Gallery (the "Gallery"). The officer, together with the Gallery, were defendants in two underlying actions – one brought by Ms. Zhou (the "first action") and another (the "second action") brought by Dror Darel, a former employee of the Gallery and Ms. Zhou's fiancé. Notably, in each of the actions, the officer of the Gallery was named as a defendant in his personal capacity. This article focuses primarily on the first action.
In August 2019, Ms. Zhou (the "plaintiff"), filed a notice of civil claim in which she alleged that she had advanced a loan for the Gallery's operating expenses as well as for the purchase of various artworks from the Gallery. Significantly, the plaintiff claimed that the loan was never repaid and the artwork never delivered. More specifically, the plaintiff alleged (1) that in January 2017, she orally entered (through a series of conversations) a loan agreement both with the defendant officer and the Gallery, (2) that both the defendant officer and the Gallery accepted the loan, and (3) that the defendant officer failed to respond to her inquiries regarding the closure of the Gallery and the failed delivery of the artworks. Moreover, the plaintiff alleged that following the Gallery's dissolution, the defendant officer obtained some or all of the Gallery's assets.
In response, the defendant officer brought an application to strike the pleadings on the grounds that the plaintiff had failed to allege any facts indicating either that (1) he had acted in his personal capacity in his dealings with the plaintiff or (2) he had engaged in any of the impugned actions, other than in his capacity as Director and Officer of the Gallery.
The Application Judge's Decision
The British Columbia Supreme Court granted the application. The Court held that the plaintiff had failed to plead facts that would attach personal liability to the defendant officer, and as such, ordered the notice of civil claim to be struck, in so far as it named the officer as the defendant. In arriving at its decision, the Court considered first, the test for striking a pleading pursuant to Rule 9-5(1)(a) and second, the test for bringing a claim against a corporate principal personally.
First, regarding the striking of a pleading, the Court observed that pursuant to Rule 9-5(1)(a), the Court may strike or amend the whole or part of a pleading on the ground that it discloses no reasonable claim.1 Citing the Supreme Court's decision in R. v. Imperial Tobacco Canada Ltd.,2 the Court explained that for an applicant to succeed in having a pleading struck, it must be "plain and obvious the plaintiff's notice of civil claim, assuming the pleaded facts within it are true, discloses no reasonable cause of action and is bound to fail".3 This is referred to as the "plain and obvious" test.
Second, regarding the bringing of a claim against a corporate principal personally, the Court noted that the test is whether the plaintiff has established an independent cause of action against the corporate principal individually. Citing the Court of Appeal of British Columbia's decision in The Owners, Strata Plan KAS 3410 v. Meritage Lofts Inc.,4 the Court explained that to establish an independent cause of action against the principal, the principal's actions must be shown to exhibit a separate identity from the company's. In other words, it is not sufficient for the plaintiff to simply allege that the principal and the company engaged in the same wrongful conduct. Rather, for the corporate veil to be pierced, the plaintiff must meet certain conditions, such as demonstrating fraud, deceit, dishonesty, or want of authority on the part of the corporate principal personally.
As to the above tests, the plaintiff argued that the defendant officer, in its application to strike, had failed to meet the "plain and obvious test", and asserted that the notice of claim did in fact disclose a reasonable cause of action against the defendant officer individually. The Court rejected the plaintiff's argument.
Instead, the Court found that the plaintiff had failed to identify, either in the notice of civil claim or the amended notice of civil claim, any specific individual actions which would render the defendant officer personally liable, separate and apart from his actions on behalf of the corporate entity. Although the plaintiffs attempted to amend their pleadings to allege "conversion" on the part of the defendant officer, the Court noted that no facts had been alleged which would indicate that the defendant officer had provided a personal commitment to underpin the obligations.
Significantly, the Court stressed that the plaintiff had neither alleged that she had made the loan to the defendant officer nor purchased the artwork from the defendant officer personally. Rather, the Court found that the plaintiff's allegations were focused entirely on the corporate entity. As the Court could find nothing in the facts alleged by the plaintiff to develop the claims against the defendant officer in his personal capacity, it concluded that it was plain and obvious that the plaintiff's pleadings disclosed no reasonable cause of action against him. Consequently, the Court struck the plaintiff's claim in the first action. Mr. Darel's claim in the second action was struck for similar reasons.
Commentary
The Supreme Court of British Columbia's decision in Darel is instructive in that it provides valuable clarification as to the conditions that must be met for a Court to pierce the corporate veil.
First, the decision reinforces the principle that the corporate veil is rarely pierced. The corporate veil serves the important function of protecting owners, principals, and employees from being held personally liable for the tortious conduct of the corporate entity. Moreover, it protects against attempts to hold non-parties liable for a breach of contract. Because of the valuable function it serves, the corporate veil will only be pierced in very limited circumstances.
Second, the decision confirms that the complete control and domination, by a parent or directing mind, of the corporate entity is not sufficient in itself to pierce the corporate veil. In Darel, the Gallery was a closely held corporation with Mr. Parker as its directing mind. Nevertheless, the Court refused to hold Mr. Parker personally liable for the Gallery's alleged breach of contract. For the Court to pierce the corporate veil, certain additional conditions must be met.
Third, the decision clarifies that for an owner, principal, or employee to be held personally liable, it must be shown either that (1) their actions themselves were tortious (including findings of fraud, deceit, dishonesty, or want of authority) or (2) their actions exhibited a separate identity or interest from that of the corporate entity, making the act complained of their own.
Finally, the decision emphasizes the strict pleadings standard that must be met by a plaintiff seeking to pierce the corporate veil. Where a plaintiff wishes to bring a personal claim against a corporate principal, it must allege facts indicating a separate and independent cause of action. It is not sufficient to simply allege that the corporate principal committed the same breach or caused the same damages as the corporate entity. Rather, the facts alleged must support the commission of an independent tort by the individual.
Notably, in Darel, the plaintiff alleged that the defendant officer was the directing mind of the Gallery, that the Gallery (under his direction) failed to repay the loan and deliver the artwork as he had promised, that the defendant officer failed to respond to the plaintiff's inquiries regarding the unpaid loan and undelivered artwork, and that the defendant officer ultimately received some or all of the Gallery's assets upon its dissolution (including presumably those owed to the plaintiff). While such allegations may appear to give rise to deceit and dishonesty, the Court was emphatic that they did not give rise even to an arguable claim against the defendant officer.
Darel exemplifies the high bar a plaintiff must meet to pierce the corporate veil. Accordingly, counsel would be well advised when drafting their pleadings to be vigilant in alleging facts which give rise to fraud, deceit, or other tortious conduct that can be attributed directly to the corporate principal.
Footnotes
1 Darel v Tri-Parker Gallery LLC, 2025 BCSC 324 at para 8; Supreme Court Civil Rules, BC Reg 168/2009, R 9-5(1)(a).
2 R. v. Imperial Tobacco Canada Ltd., 2011 SCC 42.
3 Darel v Tri-Parker Gallery LLC, 2025 BCSC 324 at para 8; R. v. Imperial Tobacco Canada Ltd., 2011 SCC 42 at para 17.
4 The Owners, Strata Plan KAS 3410 v. Meritage Lofts Inc., 2022 BCCA 109.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
