Court “Pierces the Corporate Veil” After Director Transfers Assets to Avoid Fine
In a recent decision from the Ontario Court of Justice, the courts looked at a case where an electrical company made an error that ultimately cost a man his life. In attempting to avoid paying a penalty for the mistake, the owner of the company decided to transfer its assets to either himself or a new company. The court was faced with the task of determining whether or not it could “pierce the veil” of the corporation and hold the owner responsible.
A tragic accident
The victim was 80-years-old at the time of the accident and was having his home re-fitted for himself, his wife, his daughter, and his son-in-law. The home was set up as a duplex, which would allow the victim and his wife to live in close proximity to his daughter. A general contractor was hired to perform the work. The general contractor hired a subcontractor to perform the required electrical work. The subcontractor was a company owned and operated by a single individual, though an employee of the company did the electrical work. Nevertheless, it was the owner’s responsibility to get a permit from Ontario’s Electrical Safety Authority (the “ESA”). Something he failed to do, and had he done so, the project would have been rejected. Ultimately, the subcontractor connected a heated mat underneath the floor to the home’s electrical system.
The work was performed in 2010. In 104, the victim was preparing to go to bed. His family later found him lying on the bathroom floor, which was hot. He was taken to the hospital where he was treated for severe burns on 22% of his body. He died as a result of the injuries. The ESA determined that the heated floor did not have a sensor in place, allowing it to reach temperatures of up to 140 degrees Fahrenheit.
Charges under the Electricity Act were laid against the subcontractor were laid in August 2014. The subcontractor initially denied having hooked up the heated floor, but an analysis of the materials used left little doubt that they had, indeed, performed the work. When faced with this information the subcontractor pled guilty to:
- Failing to apply for an inspection of the work;
- Failing to install electrical equipment in a manner consistent with the protection of persons and property;
- Connecting a device to the electricity supply without an inspection or an authorization to do so.
As a result of the guilty plea, the subcontractor was fined $450,000.
A transfer of assets
It was discovered during the sentencing hearing that the subcontractor’s director had transferred its assets to either himself or a newly incorporated company. The Justice of the Peace at the time determined the transfer was likely done in order to avoid payment of the fines, but declined to “pierce the veil” of the corporation and find the owner personally responsible for payment of the fine.
The decision was appealed, leading to the trial being discussed here. The appeal judge found that the Justice of the Peace had made an error in concluding that she lacked the power to pierce the corporate veil. The court wrote, “ think she felt constrained by the absence of a crystal-clear, binding black-letter statement, whether in legislation or in case precedent, confirming that she had that power. I think that if she had looked at the question of the nature of the work done by justices of the peace in the context of the principle of implied jurisdiction and beyond the narrow constraints of what is specifically stated in the Provincial Offences Act, she would have reached a different conclusion. I think that her conclusion that she had no such jurisdiction effectively neuters the provincial offences court in relation to what will be a rare but very important aspect of that court’s work.”
The wrote “it has been said that a court’s power to pierce the corporate veil will be triggered when failing to act, ‘would be too flagrantly opposed to justice’.” As a result of this, the court ordered the unpaid fines were recoverable from both the owner of the subcontracting company as well as the new corporation.
If you find yourself the victim of an accident that has left you seriously injured, you should speak to a qualified and experienced personal injury lawyer. At Derfel Injury Law, our lawyers assist victims in the claims for damages, helping them identify every potential avenue for compensation. Please contact us online or at 416-847-3580 to make an appointment to discuss your case today.