Bruce McMeekin Law

Is The Ontario Court of Justice Now A Debt Enforcement Court?

Recently, an Ontario Court Justice found that justices overseeing sentencing hearings under the Provincial Offences Act  (the “POA”) have the jurisdiction, in exceptional cases, to pierce the veil of asset-less corporate defendants holding their directors personally responsible to pay the fines levied against the defendant. Although the decision is an admirable attempt to deal with what may not be an infrequent occurrence, going forward, there are a number of issues suggesting caution in its application.

In R. v. 1137749 Ontario Ltd. Operating as Pro-Teck Electric the defendant pleaded guilty to offences under the Electricity Act. The circumstances were tragic. Pro-Teck had conducted the faulty installation of floor heating system in a house under renovation. A few years later, the elderly occupant fell onto the over-heated floor, causing him to suffer very severe, and, ultimately, fatal burn injuries. After a contested sentencing hearing, the defendant was fined a total of $430,000.

During the sentencing hearing, the Crown lead evidence that shortly after Pro-Teck was charged, its sole director had transferred its assets either to himself or to a newly incorporated company, leaving the defendant an empty shell. The presiding justice of the peace concluded that these transactions were intended to avoid the payment of fines, but declined to accept the Crown’s submission that she possessed jurisdiction to pierce the veil of the corporate defendant and hold its director personally responsible for payment.

The Crown appealed the issue of jurisdiction to the Ontario Court of Justice (the “OCJ”). O’Donnell J. sitting as a summary conviction appeal judge, overturned the justice, finding, despite the principle of corporate separateness, in exceptional cases a trial justice had the implied jurisdiction to pierce the veil when not to do so would be too flagrantly opposed to justice. He ordered that the unpaid fines were recoverable from both the director and the new corporation.

Neither the director nor the new corporation have sought leave to appeal this decision to the Court of Appeal for Ontario (the “CAO”).

The question of when the corporate veil can be pierced is one that continues to vex Canadian superior and appellate courts, particularly as to whether there is authority to do so when justice demands it. As recently as May 2018, three months before the Pro-Teck appeal was decided, it split the CAO, with the majority finding there was no such authority  (Yaiguaje v. Chevron Corporation (2018), 141 O.R. (3d) 1). Instead, it upheld the test in Transamerica Life Insurance Co. of Canada v. Canada Life Assurance((1996), 28 O.R. (3d) 423 (Gen. Div.) that the veil can only be pierced in extremely limited circumstances, and simply not when justice demands it. The parties are presently waiting to hear whether the Supreme Court of Canada will grant leave to appeal from the CAO’s decision (SCC File No. 38183).

Even if O’Donnell J. was right, it may still leave the jurisdiction issue unsettled. At its heart, piercing the veil may be an equitable remedy, as opposed to legal (Yaiguaje, paragraph 113). Here, it was applied by O’Donnell J. to trump the law (the common law principle of corporate separateness) because, otherwise, the law would work an injustice, specifically a fraud on public safety and the administration of justice. Yet, subsections 11(2) and 13(2) the Courts of Justice Act(“CJA”) only provide justices of the Superior Court of Ontario (“SCO”) and CAO with equitable jurisdiction, not OCJ judges or justices of the peace.

The doctrine of jurisdiction by necessary implication may not assist. It provides, in part, that a power or authority may be implied if it is necessary and essential to accomplish the objective of the legislation and the legislation explicitly fails to grant the power or authority. O’Donnell J. concluded, correctly, that the POAdid not empower justices to pierce the veil. But he concluded, incorrectly, that the CJA did not confer the power to pierce the veil. It did so for Justices of the SCO and CAO by confirming their inherent jurisdiction.

But, with respect, was this really the right line of inquiry? Whether there is authority to pierce the veil may become a live and relevant question only if the POA makes no provision for the collection of unpaid fines. It does. Section 68 provides that the payment of unpaid fines is to be enforced in courts of competent jurisdiction, just like a civil judgement. This may suggest that it was the legislature’s intention to leave collection problems, including the hiding or moving of assets intended to frustrate fine/debt collection, to the Superior Court of Justice, clothed with its inherent jurisdiction.