Assignment
Case Study
The Claimant E.M. Plastics & Electric Products Ltd claims against the Defendant Abby Signs Ltd. (the "Corporate Defendant) and it's principal, Greg Lardeur, for plastic and electric products sold to the Defendants but not paid for. The Corporate Defendant does not dispute its liability for the amount owing under the claim, but Mr. Lardeur does, stating that the contract of sale was made with the Corporate Defendant and not with him personally. On January 27, 2009 the parties to this action appeared at a settlement conference pursuant to Rule 7 of the Small Claims Rules. In the course of the settlement conference it became apparent that the Corporate Defendant had no defence to the claim and that the Claimant was entitled to judgement against it. The Corporate Defendant has ceased operations and any judgement against it would be an empty judgement with no real chance of recovery on it. The parties acknowledge that at no time did Mr. Lardeur ever personally guarantee the debts of the corporate defendant. The basis of the claim against him is founded on the following allegation:
"12. The Defendant Lardeur as the controlling mind, sole officer and director of the Defendant Abby Signs benefitted directly from the goods supplied to the Claimant." In the course of the settlement conference, the Claimant was asked to explain the basis of its claim that Mr. Lardeur was personally liable for the debts of the corporate defendant and to summarize the evidence that it proposed to tender in support of that claim. It was acknowledged that it was the company which was invoiced and not Mr. Lardeur. The parties are unable to support the notion of an oral guarantee as the relationship between the parties goes back some 28 years and the Claimant has candidly acknowledged that, although it has pled the existence of an oral agreement with Mr. Lardeur, it has no witnesses to support this. One of the functions of a settlement conference judge is to serve as gatekeeper, determining which claims have a triable issue and which can be determined without the expenditure of trial time, (which, by some accounts, costs the taxpayers of British Columbia in excess of $27,000 per day.)
In order to give the Claimant its day in court on this issue, the settlement conference judge must first be satisfied that there is a triable issue, i.e. that there is some evidence on which the trial judge could rest a finding of liability on the defendant, without any weighing of that evidence. The authority to screen out those claims which lack merit comes from Rule 7(14). That rule reads in part as follows:
"(14) At a settlement conference, a judge may do one or more of the following:... (b) decide on any issues that do not require evidence; (d) set a trial date, if a trial is necessary; (i) dismiss a claim, counterclaim, reply or third party notice if, after discussion with the parties and reviewing the filed documents, a judge determines that it (i) is without reasonable grounds, (ii) discloses no triable issue, or (iii) is frivolous or an abuse of the court's process; (l) make any other order for the just, speedy and inexpensive resolution of the claim."
At law, a corporation is legal entity distinct from it's shareholders, officers or directors. A contract with the corporation does not automatically bind those individuals or rest liability under the contract with them. Sometimes a court will place liability for the debts of a corporation on a principal of the company in cases where the principal has independently guaranteed the debts of the company. Liability in such cases flows not from the original contract, but from the guarantee. There is no evidence of any such guarantee in this case. A court may also find personal liability on the part of a principal for corporate debts in cases of fraud or improper conduct. There is no evidence of that alleged here. The inability of the Corporate Defendant to pay the Claimant arises from economic conditions and circumstances. It is clear that Mr. Lardeur has not personally benefitted from the non-payment and has in fact suffered personal financial loss as a result of the economic failure of the Corporate Defendant.
In Atco Ltd. v. Calgary Power Ltd. 1982 CanLII 208 (SCC), [1982] 2 S.C.R. 557, the Supreme Court of Canada discussed under what circumstances a court will look behind the corporation to rest liability on a principal, (or "pierce the corporate veil", to use the jargon of the corporate world). Madam Justice Wilson wrote at pp. 561-2:
"The company itself continues to own, operate, manage and control its assets regardless of who owns or controls it. This, as I understand it, is the essence of the separate legal personality of the incorporated company recognized by the House of Lords in the celebrated case of Salomon v. Salomon and Co., [1897] A.C. 22. Since the Salomon case the complete separation of the company and its members has never been doubted. It is true that there are instances in which the legislature and the courts have allowed the corporate veil to be lifted but when the legislature has done this it has done it by express statutory provision, for example, by expressly providing that the members of a company may become personally liable for the company's debts if the company continues to do business at a time when the number of its members has fallen below a prescribed minimum. The courts have permitted the veil to be lifted if the corporate personality was being used as a cloak for fraud or improper conduct. The courts, however, have only construed statutes as permitting the corporate veil to be lifted if compelled to do so by the clear language of the legislation."
Here, the Claimant can tender no evidence that Mr. Lardeur either personally guaranteed the debts of the company, nor that he has committed any fraudulent or improper conduct, nor that there is any statute which operates to rest liability on him for the debts of the company. The company was incorporated to protect Mr. Lardeur from such liability and no prima facie case has been put forth on which to rest liability on him. Because there is no triable issue before the court, no trial date will be set in this matter and the claim against Mr. Lardeur is dismissed pursuant to Rule 7 (14). Order The Claimant will have judgement against the Defendant Abby Signs Ltd. for the sum of $11,925.74 plus interest at the rate of 1.5% per month, (which I calculate as an addition sum of $3,577.72) for a total judgement of $15,503.46. The Claimant will also have its costs against Abby Signs Ltd. for the sum of $216. The Claim against the Defendant Greg Lardeur is dismissed. No order for costs is made against either party. Dated at the City of Abbotsford, in the Province of British Columbia this 28th day of January, 2009. The Honourable Judge K. D. Skilnick
Task
I. Review the case E.M. Plastics v. Abby Signs and Lardeur, 2009 BCPC 18, which is included with your materials for this assignment. After reading the case, answer the following question:
Is Ted's Fruit Wholesalers v. Caroline's Cider House Ltd. a case in which the Court would pierce the corporate veil? Your answer is to be one or two paragraphs in length, and you should demonstrate that you understand the reasoning of the court in E.M. Plastics. As well, your answer should be supported by one other resource, which must be a Commercial or Business Law Textbook.
II. Under what circumstances would Caroline be liable for the debts of Caroline's Cider House Ltd.? Would there be a difference in terms of liability if the business was structured as a sole proprietorship or as a general partnership? Your answer should be one or two paragraphs in length and it must be supported by a Commercial or Business Law Textbook.
The following questions are to be answered and supported by a Commercial or Business Law Textbook.
III. What is meant by a corporation's having a separate legal identity?
IV. If two people enter into a business together with the object of making money but lose it instead, can the business still be a partnership?
V. Partners have fiduciary obligations to each other. Explain what this means and give examples.