Supreme Court of Canada File No. 35682
IN THE SUPREME COURT OF CANADA (ON APPEAL FROM THE COURT OF APPEAL FOR ONTARIO)
BETWEEN:
CHEVRON CORPORATION and CHEVRON CANADA LIMITED
Appellants (Respondents/Appellants by Cross-Appeal)
-and-
DANIEL CARLOS LUSITANDE YAIGUAJE, BENANCIO FREDY CHIMBO GREFA, MIGUEL MARIO PAYAGUAJE PA YAGUAJE, TEODORO GONZALO PIAGUAJE PAYAGUAJE, SIMON LUSIT ANDE Y AIGUAJE, ARMANDO WILMER PIAGUAJE PAYAGUAJE, ANGEL JUSTINO PIAGUAJE LUCITANTE, JAVIER PIAGUAJE PAYAGUAJE, FERMIN PIAGUAJE, LUIS AGUSTIN PAYAGUAJE PIAGUAJE, EMILIO MARTIN LUSITANDE YAIGUAJE, REINALDO LUSITANDE YAIGUAJE, MARIA VICTORIA AGUINDA SALAZAR, CARLOS GREFA HUATATOCA, CATALINA ANTONIA AGUINDA SALAZAR, LIDIA ALEXANDRIA AGUINDA AGUINDA, CLIDE RAMIRO AGUINDA AGUINDA, LUIS ARMANDO CHIMBO YUMBO, BEATRIZ MERCEDES GREFA TANGUILA, LUCIO ENRIQUE GREFA TANGUILA, PATRICIO WILSON AGUINDA AGUINDA, PATRICIO ALBERTO CHIMBO YUMBO, SEGUNDO ANGEL AMANTA MILAN, FRANCISCO MATIAS ALVARADO YUMBO, OLGA GLORIA GREFA CERDA, NARCISA AIDA TANGUILA NARVAEZ, BERTHA ANTONIA YUMBO TANGUILA, GLORIA LUCRECIA T ANGUILA GREFA, FRANCISCO VICTOR TANGUILA GREF A, ROSA TERESA CHIMBO TANGUILA, MARIA CLELIA REASCOS REVELO, HELEODORO PATARON GUARACA, CELIA IRENE VIVEROS CUSANGUA, LORENZO JOSE ALVARADO YUMBO, FRANCISCO ALVARADO YUMBO, JOSE GABRIEL REVELO LLORE, LUISA DELIA TANGUILA NARVAEZ, JOSE MIGUEL IPIALES CHICAIZA, HUGO GERARDO CAMACHO NARANJO, MARIA MAGDALENA RODRIGUEZ BARCENES, ELIAS ROBERTO PIYAHUAJE PAYAHUAJE, LOURDES BEATRIZ CHIMBO TANGUILA, OCTAVIO ISMAEL CORDOVA HUANCA, MARIA HORTENCIA VIVEROS CUSANGUA, GUILLERMO VINCENTE PAYAGUAJE LUSITANTE, ALFREDO DONALDO PAYAGUAJE PAYAGUAJE and DELFIN LEONIDAS PAYAGUAJE PAYAGUAJE
Respondents (Appellants/Respondents by Cross-Appeal)
REPLY FACTUM OF THE APPELLANT, CHEVRON CANADA LIMITED TO THE FACTA OF THE INTERVENERS (Pursuant to the Order of the Honourable Justice Wagner dated August 22, 2014) GOODMANS LLP NORTON ROSE FULBRIGHT CANADA LLP Bay Adelaide Centre Suite 1500 333 Bay Street, Suite 3400 45 O'Connor Street Toronto, Ontario M5H 2S7 Ottawa, Ontario KIP 1A4
Benjamin Zarnett Sally Gomery Suzy Kauffman Tel: (613) 780-8604 Peter Kolla Fax: (613) 230-5459 Tel: (416) 979-2211 Fax: (416) 979-1234 Email: sally. [email protected]
Email: [email protected] Agents for the Appellant [email protected] (Respondent/Appellant by Cross-Appeal), [email protected] Chevron Canada Limited
Counsel for the Appellant (Respondent/Appellant by Cross-Appeal), Chevron Canada Limited
ORIGINAL TO: THE REGISTRAR OF THE SUPREME COURT OF CANADA
COPIES TO:
LENCZNER SLAGHT ROYCE SMITH GOWLING LAFLEUR HENDERSON LLP GRIFFINLLP 160 Elgin Street Suite 2600, 130 Adelaide Street West Suite 2600 Toronto, Ontario M5H 3P5 Ottawa, Ontario KIP 1C3
Alan J. Lenczner, Q.C. Ed J. VanBemmel Tel: (416) 865-3090 Tel: (613) 788-3500 Fax: (416) 865-2844 Brendan Morrison Email: [email protected] Tel: (416) 865-3559 Fax: (416) 865-9010 Agents for the Respondents (Appellants/Respondents by Cross Appeal) Email: [email protected] [email protected]
Counsel for the Respondents (Appellants/Respondents by Cross-Appeal) NORTON ROSE FULBRIGHT CANADA LLP NORTON ROSE FULBRIGHT CANADA LLP Suite 3 700, 400 Third A venue SW Suite 1500 Calgary, Alberta T2P 4H2 45 O'Connor Street Ottawa, Ontario KIP 1A4 Clarke Hunter, Q.C. Tel: (403) 267-8292 Sally Gomery Anne Kirker, Q.C. Tel: (613) 780-8604 Tel: (403) 267-9564 Fax: (613) 230-5459 Fax: (403) 264-5973 Email: sally. [email protected] Email: [email protected] [email protected] Agents for the Appellant (Respondent/Appellant by Cross-Appeal), NORTON ROSE FULBRIGHT CANADA LLP Chevron Corporation Suite 3800, Royal Bank Plaza, South Tower 200 Bay Street, P.O. Box 84 Toronto, Ontario M5J 2Z4
Robert Frank Tel: (416) 202-6741 Fax: (416) 360-8277
Email: [email protected]
Counsel for the Appellant (Respondent/Appellant by Cross-Appeal), Chevron Corporation SISKINDS LLP SUPREME ADVOCACY LLP 680 Waterloo Street, P.O. Box 2520 340 Gilmour Street, Suite 100 London, Ontario N6A 3V8 Ottawa, Ontario K2P OR3
A. Dimitri Lacaris Marie-France Major Tel: (519) 660-7872 Tel: (613) 695-8855 Fax: (519) 672-6065 Fax: (613) 695-8580 James Yap Tel: (519) 660-7872 Email: [email protected] Fax: (519) 672-6065 Agents for the Intervener, Justice and Corporate Email: [email protected] Accountability Project [email protected]
Counsel for the Intervener, Justice and Corporate Accountability Project
KLIPPENSTEINS GOWLINGS LAFLEUR HENDERSON LLP 160 John Street, Suite 300 160 Elgin Street, Suite 2600 Toronto, Ontario M5V 2E5 Ottawa, Ontario KIP 1C3
Murray Klippenstein Jeffrey W. Beedell Tel: (416) 598-0288 Tel: (613) 786-0171 Fax: (416) 598-9520 Fax: (613) 788-3587 W. Cory Wanless Tel: ( 416) 598-0288 Email: [email protected] Fax: (416) 598-9520 Agent for the Intervener, International Human Email: murray [email protected] Rights Program, University of Toronto Faculty of [email protected] Law, Mining Watch Canada, and the Canadian Centre for International Justice UNIVERSITY OF TORONTO FACULTY OF LAW 84 Queen's Park Toronto, Ontario M5S 2C5
Renu Mandhane Tel: (416) 946-8730 Fax: (416) 978-3716
Email: [email protected]
Counsel for the Intervener, International Human Rights Program, University of Toronto Faculty of Law, MiningWatch Canada, and the Canadian Centre for International Justice INDEX · - i -
TABLE OF CONTENTS
Tab No.
1. Reply Factum of the Appellant, Chevron Canada Limited, to the Facta of the Interveners, dated October 27, 2014
2. Welling, Bruce, Corporate Law in Canada: The Governing Principles, 3rd ed. (Scribblers Publishing: Mudgeeraba, Queensland, 2006) (excerpt)
3. Prest v. Petrodel Resources Ltd, [2013] UKSC 34 (excerpt)
4. Canada Business Corporations Act, R.S.C. 1985, c. C-4 (excerpt)
5. Kazemi Estate v. Islamic Republic of Iran, 2014 SCC 62 (excerpt)
6. Harvard College v. Canada, 2002 SCC 76 (excerpt)
7. 65302 British Columbia Ltd. v. Canada, [1999] 3 S.C.R. 804 (excerpt)
TAB 1 - 1 -
1. Both interveners argue that there is no jurisdiction requirement for an action for recognition and enforcement of a foreign judgment. In so far as the argument is aimed at Chevron Corporation ("Chevron Corp."), Chevron Canada Limited ("Chevron Canada") relies on Chevron Corp.'s reply factum at paragraphs 6-14. But the argument has no merit in relation to Chevron Canada, which is not a party to the foreign judgment. In essence, the interveners' argument would confer universal jurisdiction on Ontario courts to hear claims on any foreign judgment against persons unconnected to the foreign judgment or to Ontario.
2. The joint intervener, International Human Rights Program, University of Toronto Faculty of Law, MiningWatch Canada and The Canadian Centre for International Justice (collectively, the "Joint Intervener"), at paragraphs 5(b) and 15 of its factum, suggests that corporate separateness issues can be ignored on a jurisdiction motion. The Joint Intervener misses the point. Jurisdiction in Ontario over Chevron Corp. and Chevron Canada is, according to the plaintiffs, premised on there being a lack of corporate separateness between them. It is only its connection to Chevron Canada that links Chevron Corp. to Canada, and it is only its connection to Chevron Corp. that links Chevron Canada to the Ecuadorian judgment. Accordingly, the plaintiffs have made lack of corporate separateness an allegation essential to jurisdiction, and thus an allegation that has to be examined at the jurisdiction stage to see if the plaintiffs have a good arguable case on the point, in accordance with the approach endorsed by this Court in Van Breda and the Ontario Court of Appeal in Rothmans.
Club Resorts Ltd v. Van Breda, 2012 SCC 17 at para. 72; Joint Book of Authorities ofthe Appellants ("JBA''), Vol. I, Tab 23
Ontario v. Rothmans Inc., 2013 ONCA 353 at paras. 54, 106-107, leave to appeal to S.C.C. refused, 2013 CarswellOnt 17913; JBA, Vol. II, Tab 59
3. The motion judge, applying settled principles, found no arguable case to ignore corporate separateness. The Joint Intervener asserts at paragraph 16 of its factum that "courts have lamented the lack of consistent principles governing piercing the corporate veil", but the authorities it cites do not stand for that proposition. In fact, they say the opposite. For example, Clarkson v. Zhelka, a case from 1967 cited by the Joint Intervener, articulated principles consistent with those applied by the motion judge, namely that separate corporate identity is a legislative creation that must be respected by courts: - 2-
No doubt his creditors are disappointed at their inability to have access to his corporate assets and particularly where he himself is reaping some financial benefit therefrom. But that must of necessity be, so long as the Legislature provides for and encourages the formation of private corporations. Without such, of course, enterprise and business adventure would be stifled. Limited liability is one of the landmarks of incorporation.
Clarkson Co. v. Zhelka, [1967] 2 O.R. 565 at para. 77 (H.C.J.); JBA, Vol. I, Tab 22
Motion Reasons, paras. 93, 101-106; Joint Appellants' Record ("JAR"), Vol. I, Tab 2, p. 43, 47-48
4. Although some legal scholars may have discussed the appropriate scope of corporate veil piercing, others have argued that courts have no basis to pierce the corporate veil because there is an absence of statutory authority to do so. The Joint Intervener incorrectly asserts at paragraph 16 of its factum that there is no consistent approach in Canadian law to veil piercing. As Cromwell J. stated in Sun Indalex, however, "unless there is a legal basis for ignoring the separate corporate personality of separate corporate entities, those separate corporate existences must be respected." As set out in paragraphs 66-83 of Chevron Canada's appeal factum, the legal basis to ignore separate corporate personality exists only in one of three narrow circumstances, none of which are present here. 1
Bruce Welling, Corporate Law in Canada: The Governing Principles, 3rd ed. (Scribblers Publishing: Mudgeeraba, Queensland, 2006) 114-121; Tab 2
Sun Indalex Finance, LLC v. United Steelworkers, 2013 SCC 6 at para. 238; JBA, Vol. II, Tab 69
5. Separate corporate personality is created by statute. Section 15(1) of the Canada Business Corporations Act ("CBCA") provides that "[a] corporation has the capacity and, subject to this Act, the rights, powers and privileges of a natural person." The consequence is that a corporation owns its assets, and must honour claims of its creditors. Shareholders have
1 As specifically set out in paragraphs 70 and 80 of Chevron Canada's appeal factum, piercing the corporate veil can only arise in Ontario: (i) where the parent corporation exercises complete control over the subsidiary, so that the subsidiary does not function independently, and the subsidiary was incorporated for a fraudulent or improper purpose or used by the parent as a shield for improper activity (so that the subsidiary is an "alter ego" or a "mere fa9ade"); (ii) where the corporation has acted as the authorized agent for another person; and (iii) where a statute or contract requires it: Transamerica Life Insurance Co. of Canada v. Canada Life Assurance Co. (1996), 28 O.R. (3d) 423 at paras. 19,21-22 (Gen. Div.), affd 1997 CarswellOnt 3496 (C.A.); JBA, Vol. II, Tab 73; Boyd v. Wright Environmental Management Inc., 2008 ONCA 779 at paras. 44-45; JBA, Vol. I, Tab 12. - 3-
no right to the corporation's assets. Accordingly, creditors of shareholders have no right to claim against the corporation's assets.
Canada Business Corporations Act, R.S.C. 1985, c. C-4 ("CBCA"), s. 15(1); JBA, Vol. III, Tab 77
BCE Inc. v. 1976 Debentureholders, 2008 SCC 69 at paras. 34-35 ("BCE'); JBA, Vol. I, Tab 9
6. The Joint Intervener erroneously describes the corporate veil, at paragraphs 18-19 of its factum, as an outdated concept from the "dawn of the corporate age" that needs revisiting. But, separate corporate personality was not created by the 1897 decision of the House of Lords in Salomon. Rather, that decision explicitly recognized that the concept was enacted by legislation. Recently, the U.K. Supreme Court has reaffirmed that separate corporate personality, being legislative, cannot be displaced absent fraudulent or dishonest conduct designed to evade the law. And most importantly, in Canada, separate corporate personality continues as Parliament's will, legislated in the CBCA.
Salomon v. Salomon & Co., [1897] A.C. 22 at 30-31 (per Lord Halsbury) (U.K. H.L.); JBA, Vol. II, Tab 63
Prest v. Petrodel Resources Ltd, [2013] UKSC 34 at paras. 18, 34-35 (per Lord Sumption) and 83 (per Lord Neuberger); Tab 3
7. The Joint Intervener, at paragraphs 20-23 of its factum, tries to distinguish between corporations with individual shareholders and closely-held corporate groups, arguing that public policy prescribes they be treated differently. But there is no logical reason for the central policy rationale for corporate limitation of liability - namely the encouragement of investment despite the risk-taking inherent in any business- not to extend to corporations that are wholly-owned by other corporations or operate as part of a closely-held corporate group. Parliament certainly drew no such distinction. The CBCA's definitions of "affiliated bodies corporate", "control", "holding body corporate" and "subsidiary body corporate" among other provisions, show that Parliament contemplated that one corporation can own some or all of the shares of another corporation, and thus contemplated the existence of holding and subsidiary corporations: yet separate corporate personality and limitation of liability are extended by statute to all corporations no matter who owns their shares. -4-
CECA, s. 2(2)-(5); Tab 4
8. Given Parliament's policy choice to extend limited liability to all corporations, including wholly owned and controlled subsidiaries, the Joint Intervener's assertion at paragraph 23 of its factum that the extension of limited liability to corporate groups was a "historical accident" is clearly wrong. Wrong too is the Joint Intervener's characterization at paragraph 25 of its factum of limited liability between parent and subsidiary corporations as "common law principles". Parliament's decision was to legislate limited liability for all corporations. The importance of respecting Parliament's policy choices has been highlighted many times by this Court.
See, for example: Kazemi Estate v. Islamic Republic of Iran, 2014 SCC 62 at paras. 45-46, 60, 108 and 159-160, Tab 5; Harvard College v. Canada, 2002 SCC 76 at paras. 144-146, Tab 6; and, 65302 British Columbia Ltd. v. Canada, [1999] 3 S.C.R. 804 at paras. 59, 62, Tab 7
9. As for the "danger" of limited liability in tort law and the "governance gap" that are posited in paragraphs 7 and 24 of the Joint Intervener's factum, they envisage a parent company insulating itself from a foreign subsidiary's misconduct. This has nothing to do with the facts of this case. The plaintiffs here claim to hold a judgment not against an asset less subsidiary, but against the parent corporation. No governance gap arises from the plaintiffs' problems in enforcing the judgment against Chevron Corp. in the United States. Their problems are legal ones arising from the circumstances in which they obtained the Ecuadorian judgment. None of this can at all justify ignoring Chevron Canada's separate corporate existence. It engaged in no misconduct, and the plaintiffs' themselves explicitly "do not allege any wrongdoing against Chevron Canada."
See, for examples from the Joint Intervener's authorities: UN Framework, Joint Intervener's Authorities ("JIA"), Vol. II, Tab 24, para. 13; lnt'l Commission of Jurists, Corporate Complicity, JIA, Vol. I, Tab 16, p. 45-4 7
Amended Statement of Claim, para. 21; JAR, Vol. I, Tab 9, p. 107
10. The intervener Justice and Corporate Accountability Project ("JCAP") attempts, at paragraph 29 of its factum, to draw a "conceptual" distinction between piercing the corporate veil on one hand, and making a subsidiary's assets available to satisfy a judgment against its parent on the other. There is no such distinction. This Court's decision in BCE made clear - 5-
that "[w]hile the corporation is ongoing, shares confer no right to its underlying assets." This is a central aspect of separate corporate personality. To make Chevron Canada's assets available to satisfy a judgment against Chevron Corp. on the basis that Chevron Corp. is Chevron Canada's ultimate parent would be to disregard Chevron Canada's separate corporate personality and pierce the corporate veil, since it would treat assets of the corporation as though they were assets of the ultimate shareholder.
BCE, supra at paras. 34-35; JBA, Vol. I, Tab 9
11. JCAP is also mistaken when, at paragraph 31 of its factum, it asserts that enterprise liability is a form of vicarious liability that does not violate the principle of corporate separateness. The case law makes clear that a theory of enterprise liability would necessarily be predicated on piercing the corporate veil and thus abrogate the principles of separate corporate identity described in Salomon. Nor is this a case of alleged vicarious liability through some agency between one corporation and another. Indeed, the plaintiffs have never even alleged an agency relationship here.
Fairview Donut Inc. v. TDL Group Corp., 2012 ONSC 1252 at para. 657 (S.C.J.), affd 2012 ONCA 867, leave to appeal to S.C.C. refused, [2013] S.C.C.A. No. 47; JBA, Vol. I, Tab 30
Hughes v. Sunbeam Corp. (Canada) Ltd. (2000), 11 B.L.R. (3d) 236 at paras. 43- 49 (Ont. S.C.J.), rev'd on other grounds (2002), 61 O.R. (3d) 433 at para. 11 (C.A.); leave to appeal to S.C.C. refused (2003), 320 N.R. 193 (note); JBA, Vol. II, Tab 39
Adams v. Cape Industries Plc, [1990] 1 Ch. 433 at 532, 536-537 (Eng. C.A.); JBA, Vol. I, Tab 3
Motion Reasons, para. 96; JAR, Vol. I, Tab 2, p. 45
October 27, 2014 ALL OF WHICH IS RESPECTFULLY SUBMITTED
Benjamin Zarnett I Counsel to the Appellant, Chevron Canada Limited - 6-
TABLE OF AUTHORITIES Paragraph Reference(s)
65302 British Columbia Ltd. v. Canada, [1999] 3 S.C.R. 804 8
Adams v. Cape Industries Pte, [1990] 1 Ch. 433 (Eng. C.A.) 11
BCE Inc. v. 1976 Debentureholders, 2008 SCC 69 5, 10
Boyd v. Wright Environmental Management Inc., 2008 ONCA 779 4
Canada Business Corporations Act, R.S.C. 1985, c. C-4 5, 7
Clarkson Co. v. Zhelka, [1967] 2 O.R. 565 (H.C.J.) 3
Club Resorts Ltd v. Van Breda, 2012 SCC 17 2
Fairview Donut Inc. v. TDL Group Corp., 2012 ONSC 1252 (S.C.J.), affd 11 2012 ONCA 867, leave to appeal to S.C.C. refused, [2013] S.C.C.A. No. 47
Harvard College v. Canada, 2002 SCC 76 8
Hughes v. Sunbeam Corp. (Canada) Ltd. (2000), 11 B.L.R. (3d) 236 (Ont. 11 S.C.J.), rev'd on other grounds (2002), 61 O.R. (3d) 433 (C.A.); leave to appeal to S.C.C. refused (2003), 320 N.R. 193 (note)
Kazemi Estate v. Islamic Republic ofIran, 2014 SCC 62 8
Ontario v. Rothmans Inc., 2013 ONCA 353, leave to appeal to S.C.C. 2 refused, 2013 CarswellOnt 17913
Prest v. Petrodel Resources Ltd, [2013] UKSC 34 6
Salomon v. Salomon & Co., [1897] A.C. 22 (U.K. H.L.) 6, 11
Sun Indalex Finance, LLC v. United Steelworkers, 2013 SCC 6 4
Transamerica Life Insurance Co. of Canada v. Canada Life Assurance Co. 4 (1996), 28 O.R. (3d) 423 (Gen. Div.), affd 1997 CarswellOnt 3496 (C.A.)
Welling, Bruce, Corporate Law in Canada: The Governing Principles, 3rd ed. 4 (Scribblers Publishing: Mudgeeraba, Queensland, 2006) TAB2 c0RP0 -; A:'i'E AW INCANADA
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ii CORPORATE LAW IN CANADA: THE GOVERNING PRINCIPLES
positions in the corporate hierarchy made the corporate decision. The exercising of the so-called collective will was the result of mutually influenced individual wills. The realist theory confuses verbal imagery ("collective will") with observable phenomena. The theory stumbles again when applied to a corporation controlled by one individual. Suppose, for example, an individual founds a corporation to which certain tax legislation does not apply; the corporation serves only one purpose - it is a tax dodge. In this fashion, the individual avoids paying taxes for which he would otherwise be liable. The corporation is merely a technical legal body. It has such vitality as the law prescribes, no more and no less. The realist theory would attempt to breathe a metaphysical essence into this artificial entity that has no purpose, substance, or existence outside the technical field of law.91
The fiction and realist theories give different and incompatible accounts of why a corporation is to be regarded as a person. Apart from a few exceptions, Canadian courts tend to ignore these theories and accept the simple proposition that corporate activities are to be analyzed for legal purposes by analogy to human activities. The "why" question has a simple answer in Canadian corporate law. Law is about an actor's capacity, rights, powers and privileges. A corporation's capacity, rights, powers and privileges are pretty much the same as an individual's, because the legislature said so.
3 Tough corporations don't wear veils
Many 20th century judges liked corporate personality about as much as Gilbert and Sullivan did.92 They claimed authority to ignore it on numerous occasions. They always claimed they were "lifting (or piercing) the corporate veil". I can't see where they would get such power; I deny that they had it. I deny that any judge has authority to pretend a corporation doesn't exist unless a statute specifically gives the judge that power. Their talk about "the corporate veil" is pure mystification and leads the analysis astray. Corporations don't usually wear
91 For a review of the historical and philosophical bases of corporate personality, see RD Lumb, "Corporate Personality" (1964) 4 U of Queensland LJ 418. For further discussion on the "realist" and "fiction" theories see Martin Wolff,"On the Nature of Legal Persons"(1938) 54 L QR 494521, or the classic expose by HLA Hart in (1954) 70 LQR 4970. For an historical review of the development of American views, with references to antecedents in the Greek, Roman, corrn-non law and colonial systems, see CE Martin, "Is a Corporation a `Person'"44 W Va L Rev 247 (1938). 92 Go see the Dulce of Plaza -Toro incorporated in "The Gondoliers".
114 CORPORATE PERSONALITY
veils.93 Analysts and judges who see corporate personality as a stumbling block must use proper legal rules to find the solutions they seek. Analysts who assume away corporate existence to reach a result are like hypothetical shipwrecked economists with tins of spam: assume a can-opener and you attain (bodily) salvation. Judges in real cases, like economists on real desert islands, can't get away with it.
Having advanced this bold proposition, I must now show it to be so. Let's (a) begin with a real incident, (b) review the statutory rules, (c) investigate what judges thought they were doing in the 19th and 20th centuries, then (d) see whether any remnants of what they said they had power to do remains.
(a) Men Without Hats Without Veils
In late 1988 a well-known Canadian telephone company cut off an Ottawa man's phone. They did it because his mother had not paid her phone bill. The man did not live with his mother, they had different telephone numbers, and he didn't see why her bill was his responsibility. He complained to the CRTC, the telephone regulatory agency. The CRTC made short work of the case, ordering his phone service restored.
If that dispute hadn't happened, I would have made it up. Surely no one would disagree with the outcome; whether real or hypothetical.. Did you notice the missing link? It never occurred to the CRTC to "pierce the individual veil" and make him pay. He probably didn't wear a veil and the CRTC presumed no power to ignore his separate legal personality.
(b) Review: Statutory Corporate Personality
As explained earlier in this chapter, most Canadian corporate statutes describe the legal nature of corporations as follows: "A corporation has the capacity and,
93 Just sometimes: Rob Form and James Brown (with possible input from Melissa Barnett) pointed out my error in the 2nd edition, where I failed to anticipate the ruling in Halpern v Canada (A-G)(2003) 65 OR 3d 161, 225 DLR 4th 529 (Ont CA). The case determined that what people had always thought was the common law definition of marriage (between "one man and one woman") wasn't, because of the Charter ofRights. The Court ruled (at DLR 570) that the correct definition was "the voluntary union for life of two persons to the exclusion of all others". A corporation is a person, so the Ontario Court of Appeal has told us that a corporation can contract marriage. I have no difficulty imagining a corporation doing so in the conventional costume, including a bridal veil. Some bigots might disagree.
115 CORPORATE LAW IN CANADA: THE GOVERNING PRINCIPLES
subject to this Act, the rights, powers and privileges of a natural perscin".94 I'm not sure whether a gentleman who declines to pay his mother's, friend's or business associate's phone bill does so on the ground of capacity ("we are separate adult legal persons") or privilege CI am at liberty to disdain all creditors but my own"). It must be one of those. A Canadian corporation with a parent, friend or business associate in financial distress may decline on identical grounds. A shareholder who is asked to pay a corporate debt would be well advised to make the same response.95
(c) Judges on "Corporate Veils": What Were They Thinking?
A corporation's position was the same before the enactment of sections like CBCA s 15(1). In Canada, a letters patent corporation always had the capacity of an individual.96
For English-model companies, the road to the same conclusion had a few detours. Lord Halsbury noted in the Salomon case that the English statute of 1844 had given each new registered company "a legal existence with ... rights and liabilities of its own, whatever may have been the ideas or schemes of those who brought it into existence".97 The English statute did not have a section like
94 CBCA s 15(1), ABCA s 16, BCBCA s 30, MCA s 15, NBBCA s 13, NCA s 27, NSCA s 26(8), OBCA s 15,SBCA s 15, and YBCA s 18. Quebec, a civil law jurisdiction, is differently phrased: QCA s 123.16 says a company is a "legal person", s 123.29 says "A company has the full enjoyment of civil rights except respecting what is proper to the human person". Prince Edward Island remains a letters patent jurisdiction. 95 And to cite the section ofthe incorporating statute that says "The shareholders of a corporation are not, as shareholders, liable for any liability, act or default of the corporation [except under specific sections of this statute that make them liable in particular circumstances]": CBCA s 45(1); ABCA s 46(1); BCBCA s 87(1); MCA s 43(1); NBBCA s 44(1); NCA s 81); OBCA s 92(1); SBCA s 43(1); YBCA s 47(1)). QCA s 41 (via s 133.6) says shareholders are not liable_ "as such" for corporate liabilities greater than amounts unpaid on their shares. The Nova Scotia provisions immunizing shareholders are functionally identical to the English Companies Act 1862: see NSCA ss 9(a), 10 (a)(iii), and 135(d). Prince Edward Island's old letters patent statute isn't explicit about corporate personality, but one can draw the same two conclusions based on authorities much older than Salomon:s case. 96 Bonanza Creek Gold Mining Co v The King [1916] 1 AC 566, 26 DLR 273 (Ont JCPC). See ""Canadian Development of Corporate Personality" earlier in this chapter. 97 Salomon v Salomon & Co Ltd [1897] AC 22 (Eng HL), explained earlier in this chapter. A few years earlier the House of Lords had also seen it as a statutory point in the Ashbuty Railway case LR7 HL 653. Lord chancellor Cairns said at 668: "the Act ... speaks of the incorporaton of the company; but your Lordships will observe that it does not speak of that incorporation as the creation of a corporation with inherent common law rights, such rights as are by the common law possesied by every corporation ...".
116 CORPORATE PERSONALITY
CBCA s 15(1). However, a careful reading of the reasons for judgment makes it clear that the House of Lords was interpreting the statute as having given registered companies legal personality. The House of Lords had neither the power nor the inclination to legislate that point on its own. Some subsequent judges and academics didn't see it that way. Here's a classic example of how they went astray.98
The doctrine laid down in Salonion's case has to be watched very carefully. It has often been supposed to cast a veil over the personality of a limited company through which the courts cannot see. But that is not true. The courts can, and often do, draw aside the veil. They can, and often do, pull off the mask. They look to see what really lies behind. The legislature has shown the way with group accounts and the rest. And the courts should follow suit. [The subsidiary corporation here] is the creature, the puppet, of Littlewoods in point of fact: and it should be so regarded in point of law.
There are several problems with that approach. First, Salomon did not "cast a veil" over the corporate personality, as if to shroud its existence; Salomon clarified that the corporation had a personality of its own. Second, the courts, in looking into the character of corporate personality, are not pulling off a mask: they are merely describing the corporate face by analyzing each of its characteristic features.99 Third, it is true that some legislatures have created a limited number of situations in which a judge may ignore the corporate entity for some specific purpose.100 However, the usual rule of interpretation is that such legislation impliedly restricts the practice to those situations enumerated, rather than giving judges carte blanche to "follow suit" in other situations. Fourth, the House of Lords in Salomon didn't say that the Law Lords were giving registered companies personalities that subsequent judges were at liberty to ignore. Salomon stands for the proposition that Parliament had given registered companies legal personalities, without noting any statutory exceptions: Lord Denning appears to have got that point backwards. There is no warrant, in
98 Littlewoods Mail Order Stores Ltd v IRC; Same v McGregor [1969] 1 WLR 1241 (Eng CA) r per Lord Denning at 1254. 99 Compare the well-known comedienne's dilemma:"I had a facelift; they found another one just like it underneath". 100 It is not unusual to find, particularly in tax statutes, limited situations described in which a transaction may be taxed as if there were no corporation in existence. Typically, such sections are narrow, have been enacted for particular purposes, and in no way detract from the general proposition of corporate personality. They are similar to other sections taxing, for example, persons subject to impediment of marriage as if they were not separate individuals.
117 CORPORATE LAW IN CANADA: THE GOVERNING PRINCIPLES
Salomon or elsewhere in corporate law, for ignoring the principle of corporate entity at the whim of an individual judge.ioi
Judges have claimed the power to "pierce the corporate veil" in three types of situations.
One is based on the straightforward judicial conclusion that "it's just not fair." This is essentially all there is to the American "Deep Rock doctrine?' It evolved out of an attempt by Justice Douglas to explain why the claim of a controlling shareholder was subordinate to claims of corporate creditors. He said:102
At times equity has ordered disallowance or subordination by disregarding the corporate entity. That is to say, it has treated the debtor corporation simply as a part of the stockholder's own enterprise.... [A] sufficient consideration may be simply the violation ofrules offair play and good conscience by [the majority shareholder], a -breach of the fiduciary standards of conduct which he owes the corporation, its stockholders and creditors.
Little need be said about this rationale, other than that it simply won't do. There are, so far as I am aware, no broadly enforceable standards of"fair play and good conscience", at least in Canadian corporate law. Standards of sportsmanship and gentlemanly conduct have been enforced traditionally by one's peers and by the marketplace, not by referees and judges. To the extent that such standards are legally relevant, they apply only within the confines of the fiduciary obligations that corporate directors and officers owe to their corporations; the broader equitable relationships referred to above just do not exist. Pretending they do is a lame excuse for pretending that corporations don't.103
101 If there were, one would expect Salomon's case itself to have been decided on the basis that the corporation was a sham and that, notwithstanding its. legal existence, Mr Salomon was personally liable. The rule was properly applied in Johnston v Law Society ofPEI (1988) 229 APR 239(PEI SC), in which a sole shareholder asked the court to "lift the corporate veil" so he could collect costs paid by the corporation. He lost. 102 Pepper v Litton 308 US 295 (USSC 1939) at 310. This approach was rejected in BG Preeco (Pacific Coast) Ltd v Bon Street Holdings Ltd(1989) 43 BLR 67(BCCA) per Seaton JA at 77. 103 Justice Sharpe (now of the Ontario Court of Appeal) disapproved of this judicial practice in Transamerica Life Insurance Co ofCanada v Canada Life Insurance Co (1996)28 OR 3d 423 (Ont), affind 1997 OJ No 3754(Ont CA), saying (at 28 OR 3d 433): There are undoubtedly situations where justice requires that the corporate veil be lifted.... will be difficult to define precisely when the corporate veil is to be lifted, but that lack of a precise test does not mean that a court is free to act as it pleases on some loosely defined 'just and equitable' standard. His warning appears to have been heeded in subsequent cases that are easily found with a Quicklaw update.
118 CORPORATE PERSONALITY
Some have advanced the rather confused notion that judges can disregard corporate entity whenever a corporation was created or managed for nefarious purposes. Judicial views in this category tend to be self-contradictory. An example can be found in a 1974 Federal Court case. As we shall see later in this chapter, the result in the case can be explained by simple analogy to the character of an individual. Contrast the following extract from the reasons for judgment.104
In the present instance it is evident that [the defendant] is nothing but an instrument in the hands of the parent companies and the rule of instrumentality should be applied to lift the veil in order to assess the course of conduct of (the defendant) and of the group. ... The Court reiterates and underlines that it does not consider [the defendant] as an entity having no life of its own or as an agent.
What did he mean? The two sentences contradict one another.
The third category is more of a threat to rational decision making. It includes cases in which judges, after having reasoned their way to logical conclusions, proceed to let off steam in unprincipled invective. The proper legal term for such judicial comments is, of course, obiter dicta. Yet, the fact that the comments are made allows future litigants to cite the dicta and tempts other judges to discard reasoned analysis in favour of glib, stock phrases. An oft-cited, example is Clarkson Co Ltd v Zhelka.105 The case involved a complex bankruptcy situation. Justice Thompson did an admirable job of sorting out the facts and reaching a reasoned conclusion. Unfortunately, he did not stop there. His follow-up dicta on "piercing the corporate veil" have been trotted out with distressing regularity in subsequent cases. Again, note the inherent contradictions.106
The cases in which the Courts, both in this Province and in England, have seen fit to disregard the corporate entity or personality, and instead to consider the economic realities behind the legal facade, fall within a narrow compass. ... Such cases as there are illustrate no consistent principle. ... If a company is fainted for the express purpose of doing a wrongful or unlawful act, or if when formed, those in control expressly direct a wrongful thing to be done, the individuals as well as the company are responsible to those to whom liability is legally owed.
104 De Salaberry Realties Ltd v MNR (1974)46 DLR (3d) 100 (Fed Ct); affd (1976)70 DLR (3d) 706 (Fed CA). 105 Clarkson Co Ltd v Zhelka (1967) 64 DLR (2d)457 (Ont HC). 106 Ibid at 469470.
119 CORPORATE LAW IN CANADA: THE GOVERNING PRINCIPLES
But how? And why? Perhaps those who direct [ie counsel] a corporation to commit an unlawful act will themselves incur legal liability. If so, it will be by virtue of a legal rule, not as a result of calling a legal person a "facade". The judge continued.
In such cases, or where the company is the mere agent of a controlling corporator, it may be said that the company is a sham, cloak or alter ego, but otherwise it should not be so termed [Emphasis added].
This slapdash approach was criticized in a 1989 British Columbia case, where it was pointed out that, "If it were possible to ignore the principles of corporate entity when a judge thought it unfair not to do so, Salomon's case would have afforded a good example for the application of that approach".I07 More recently, in Ontario, Justice Sharpe narrowed the range of considerations that he thought judges could use in "piercing the corporate veil".108
[T]he 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. The first element "complete contra', requires more than ownership. It must be shown that there is complete domination and that the subsidiary company does not, in fact, function independently. The second element refers to the nature of the conduct: is there "conduct akin to fraud that would otherwise unjustly deprive claimants of their rights"?
Judges in subsequent cases have taken to citing Justice Sharpe and applying that test to the facts.109
107 BG Preeco I (Pacific Coast) Ltd v Bon Street Holdings Ltd (1989) 60 DLR 4th 30 at 37 (BCCA). Similarly, see Agz:p (Africa) Ltd v Jackson [1989] 3 WLR 1367(Eng) per Millett J at 1385. The latter case involved a "money laundering" scheme, with several thinly capitalized corporations, one of which the judge had already called a "mere shell". 108 Transamerica Life Insurance Co of Canada v Canada Life Insurance. Co(1996) 28 OR 3d 423 (Ont), affind 1997 OJ No 3754(Ont CA), at 28 OR 3d 433-434. He must have been speaking • obiter since he concluded that neither of the required elements was present in the Transamerica case. 109 For classic examples, see Haskett v Equifax Canada Inc(2003) 63 OR 3d 577(Ont CA)at 598 (action dismissed: test not applicable to facts) and 642947 Ontario Ltd v Fleischer (2001) 56 OR 3d 417, 209 DLR 4th 182(Ont CA) at DLR 206-207 (appeal dismissed, trial judge's "veil piercing" approved). English courts have also narrowed their grounds: see Adcznis v Cape Industries PLC [1990] 2 WLR 657(Eng CA).
120 CORPORATE PERSONALITY
Courts in Canada have yet to take the final step and acknowledge that they have no inherent power to pretend that a corporation does not exist. I suspect the reason is simple. Most barristers concede the judge has power to "pierce • the corporate veil", then argue that this is not an appropriate case in which to use the power. They are conceding too much and they are ignoring the clear wording of Canadian corporate statutes. It is time for someone to stand up and say "quo warranto?".
C USING CORPORATE PERSONALITY TO SOLVE ]P 0 LEMS
The law is concerned with regulating personal interaction, whether between two ordinary people or between one ordinary person and Her Majesty, the executive branch of government. The law regulates those activities in terms of an ordinary person's capacity, rights, powers and liberties. Any legal dispute comes down to an assessment of one or more of those four, plus a consideration of what witnesses and other sources of evidence suggest occurred. Lack of capacity means the alleged consequence didn't occur. A determination of right recognizes a legal obligation and previews the imposition oflegal consequences on someone else. An analysis ofpower examines whether what appears to have happened was impossible: if it was it didn't happen. A statement about liberty says either that no legal consequences will be visited on the libertine or that someone's liberty was violated: tort or equitable compensation must be paid in the latter case.
That's all legal disputes are about. Corporations can get involved in legal disputes. No one these days doubts that a corporation can be the principal or agent in an agency relationship, can be the employer in a labour dispute, can to be a tortfeasor, a criminal, a tenant or a tea merchant. A lawyer must understand how corporations fulfil those roles, and must know what evidence proves what corporations do. Canadian corporate statutes tell lawyers and judges that they are statutorily compelled to assess the capacity, and the rights, powers and liberties,1 10 of any Canadian business corporation by strict and full analogy to _those four legal characteristics of an individual. Though the physical or psychological analogy may sometimes be strained, the rule mandating legal analysis by analogy is clear.
110 British Columbia, Newfoundland, and Ontario don't allow for the possibility of other sections of the BCBCA, NCA, and OBCA limiting rights, powers and privileges, Whereas most of the statutes make those three (but not capacity) "subject to this Act'.
121 TAB 3 415 [2013] 2 AC Prest v Prest (SC(E))(E))(SC
A Supreme Court Prest v Petrodel Resources Ltd and others
[2012] EWCA Civ 1395 [2013] UKSC 34 B [On appeal from Prest v Prest]
2012 July 2, 3; Thorpe, Rimer, Patten LJJ Oct 26 2013 March 5, 6; Lord Neuberger of Abbotsbury PSC, Baroness Hale of June 12 Richmond, Lord Mance, Lord Clarke of Stone-cum-Ebony, C Lord Wilson, Lord Sumption JJSC, Lord Walker of Gestingthorpe
Husband and wife Financial relief Transfer of property Properties held by companies controlled by husband Wife alleging that properties belonging bene cially to husband Husband and companies failing to comply with orders for disclosure Husband ordered to transfer properties to wife or to cause them to be so transferred Whether property to which husband entitled D Whether conditions for piercing companies corporate veils established Whether court entitled to draw adverse inferences as to bene cial ownership of properties Whether jurisdiction to order husband to transfer properties held by companies to wife Matrimonial Causes Act 1973 (c 18), s 24(1)(a)
The wife issued a claim for ancillary relief under section 23 of the Matrimonial 1 Causes Act 1973 against her husband, who was the sole owner of a number of E complexly structured o›shore companies. The wife alleged that the husband had used the companies to hold legal title to properties which belonged bene cially to him. However, the husband failed to comply with orders for the full and frank disclosure of his nancial position and the companies, which were joined as parties to the proceedings, failed to le a defence or to comply with orders for disclosure. The judge rejected the wife s submission that the husband had been guilty of any impropriety in relation to the companies such as would ordinarily entitle the court to F pierce the corporate veil, but held that, in matrimonial proceedings for ancillary relief, section 24(1)(a) of the 1973 Act conferred a wider jurisdiction to pierce the corporate veil. The judge concluded that, since the husband had the practical ability to procure the transfer of the properties, he was entitled to them within the meaning of section 24(1)(a), giving the court jurisdiction to make a transfer order in respect of them. Accordingly, he ordered the husband to transfer or cause to be transferred to the wife six properties and an interest in a seventh which were held in the name of two G of the husband s companies. The Court of Appeal by a majority allowed an appeal by the companies, holding that the Family Division s practice of treating the assets of companies substantially owned by one party to the marriage as available for distribution under section 24(1)(a) was beyond the jurisdiction of the court unless the corporate personality of the company was being abused for a purpose which was in some relevant respect improper or, on the particular facts, it could be shown that an asset legally owned by the company was held in trust for the husband and that, since H the judge had rejected both of those possibilities, he ought not to have made the order. On the wife s appeal Held,(1) that the recognition of a limited power to pierce the corporate veil and to disregard the separate personality of a company in carefully de ned circumstances
1 Matrimonial Causes Act 1973,s24(1): see post, Court of Appeal judgments, para 68.
' 2013 The Incorporated Council of Law Reporting for England and Wales 416 Prest v Prest (SC(E))(E))(SC [2013] 2 AC was necessary if the law were not to be disarmed in the face of abuse and, provided A that the limits were recognised and respected, it was consistent with the general approach of English law to the problems raised by the use of legal concepts to defeat mandatory rules of law; that, therefore, if a person were under an existing legal obligation or liability or subject to an existing legal restriction which he deliberately evaded or the enforcement of which he deliberately frustrated by interposing a company under his control, the court could pierce the corporate veil for the purpose, and only for the purpose, of depriving that company or its controller of the advantage B which they would otherwise have obtained by the company s separate legal personality; but that the legal interest in the disputed properties was vested in the companies and, whatever the husband s reasons for organising matters in that way, there was no evidence that he was seeking to avoid any obligation which was relevant in the present proceedings; and that, accordingly, there was no justi cation as a matter of general legal principle for piercing the corporate veils of the companies 27 35 36 57 58 61 80 82 96 97 103 (post, Supreme Court judgments, paras , — , — , , — , , , , C 104). Gilford Motor Co Ltd v Horne [1933]Ch935,CA,Jones v Lipman [1962] 1 WLR 832, Gencor ACP Ltd v Dalby [2000] 2 BCLC 734 and Trustor AB v Smallbone (No 2) [2001] 1 WLR 1177 considered. (2) That, where there was no justi cation as a matter of general legal principle for piercing the corporate veil, no special and wider principle applied in matrimonial 24 1 1973 proceedings by virtue of section ( )(a) of the Matrimonial Causes Act ; that D section 24(1)(a) invoked concepts of the law of property, with an established legal meaning and recognised legal incidents under the general law, which could not be suspended or mean something di›erent in matrimonial proceedings; that there was nothing in the 1973 Act, or in its purpose or broader social context, to indicate that the legislature had intended to authorise the transfer by one party to the marriage to the other of property which was not his to transfer; that such a transfer would ordinarily be unnecessary for the purpose of achieving a fair distribution of the assets E of the marriage since, if assets belonged to a company owned by one party to the marriage, the proper claims of the other could ordinarily be satis ed by directing the transfer of shares and, so far as a party deliberately attempted to frustrate the exercise of the court s ancillary powers by disposing of assets, section 37 of the Act provided for the setting aside of those dispositions in certain circumstances; that the recognition of a jurisdiction such as the judge had sought to exercise would cut across the statutory schemes of company and insolvency law, which were essential for the protection of those dealing with a company; and that, accordingly, section 24(1)(a) F did not give the judge power to order the husband to transfer to the wife property to which he was not in law entitled (post, Supreme Court judgments, paras 37—41, 57—58, 86, 88—89, 96, 97, 103, 104). But, (3) allowing the appeal, that the companies could be ordered to convey the seven disputed properties to the wife under section 24(1)(a) of the 1973 Act if the properties belonged bene cially to the husband by virtue of the particular circumstances in which they had come to be vested in the companies; that that issue G required an examination of evidence which, almost entirely due to the husband s persistent obstruction and mendacity, was incomplete and in critical respects obscure; that in claims for ancillary relief in matrimonial proceedings, which had a substantial inquisitorial element, judges were entitled to draw on their experience and to take notice of the inherent probabilities when deciding what an uncommunicative spouse was likely to be concealing; that the wife had expressly alleged that the husband had used the companies to hold legal title to properties H which belonged bene cially to him and the judge s ndings about the ownership and control of the companies meant that the companies refusal to co-operate with the proceedings was a course ultimately adopted on the direction of the husband; that it was a fair inference that the main, if not the only, reason for the companies failure to co-operate was to protect the seven properties, which in turn suggested
' 2013 The Incorporated Council of Law Reporting for England and Wales 417 [2013] 2 AC Prest v Prest (SC(E))(E))(SC
A that proper disclosure of the facts would reveal them to have been held bene cially by the husband; and that, accordingly, the seven disputed properties were held by the companies on trust for the husband and, in those circumstances, the order of the judge requiring the properties to be transferred to the wife would be restored (post, Supreme Court judgments, paras 44—45, 55, 57—58, 84—85, 96, 97, 103, 104). Herrington v British Railways Board [1972]AC877, HL(E) and R v Inland B Revenue Comrs, Ex p TC Coombs & Co [1991] 2 AC 283, HL(E) considered. Per Lord Neuberger of Abbotsbury PSC, Lord Clarke of Stone-cum-Ebony and Lord Sumption JJSC. If it is not necessary to pierce the corporate veil, it is not appropriate to do so, because on that footing there is no public policy imperative which justi es that course (post, Supreme Court judgments, paras 35, 62, 103). Dictum of Munby J in Ben Hashem v Al Shayif [2009] 1 FLR 115, para 164 approved. C Dictum in VTB Capital plc v Nutritek International Corpn [2012] 2 Lloyd s Rep 313, para 79, CA disapproved. Per Lord Mance and Lord Clarke of Stone-cum-Ebony JJSC. The court should not seek to foreclose all possible future situations which may arise. However, the situations in which piercing the corporate veil may be available as a fall-back are likely to be very rare and no one should be encouraged to think that any further exception, in addition to the evasion principle, will be easy to establish (post, D Supreme Court judgments, paras 100, 102, 103). Per Lord Sumption JSC. Whether assets legally vested in a company are bene cially owned by its controller is a highly fact-speci c issue. But, in the case of the matrimonial home, the facts are quite likely to justify the inference that the property was held on trust for a spouse who owned and controlled the company (post, Supreme Court judgments, para 52). Decision of the Court of Appeal, post, p 421;[2012] EWCA Civ 1395;[2013] E 2 WLR 557 reversed in part. The following cases are referred to in the judgments of the Supreme Court: AvA[2007] EWHC 99 (Fam); [2007] 2 FLR 467 Adams v Cape Industries plc [1990]Ch433;[1990] 2 WLR 657;[1991] 1 All ER 929,CA Alliance Bank JSC v Aquanta Corpn [2012] EWCA Civ 1588;[2013] 1 All F ER (Comm) 819;[2013] 1 Lloyd s Rep 175,CA Allied Capital Corpn v GC-Sun Holdings LP (2006) 910 A 2d 1020 Atlas Maritime Co SA v Avalon Maritime Ltd (No 1) [1991] 4 All ER 769,CA Attorney General v Equiticorp Industries Group Ltd [1996] 1 NZLR 528 Attorney General s Reference (No 2 of 1982) [1984]QB624;[1984] 2 WLR 447; [1984] 2 All ER 216,CA Bank of Tokyo Ltd v Karoon (Note) [1987]AC45;[1986] 3 WLR 414;[1986] 3 All G ER 468,CA Barcelona Traction, Light and Power Co Ltd (Belgium v Spain) (Second Phase), Case concerning [1970] ICJ Rep 3 Belmont Finance Corpn Ltd v Williams Furniture Ltd [1979]Ch250;[1978] 3 WLR 712;[1979] 1 All ER 118,CA Ben Hashem v Al Shayif [2008] EWHC 2380 (Fam); [2009] 1 FLR 115 Berkey v Third Avenue Railway Co (1926) 155 NE 58 H Briggs v James Hardie & Co Pty Ltd (1989) 16 NSWLR 549 Broderip v Salomon [1895] 2 Ch 323, CA; sub nom Salomon v A Salomon & Co Ltd [1897]AC22, HL(E) Cape Paci c Ltd v Lubner Controlling Investments (Pty) Ltd 1995 (4)SA790 Darby, In re; Ex p Brougham [1911] 1 KB 95 Gencor ACP Ltd v Dalby [2000] 2 BCLC 734
' 2013 The Incorporated Council of Law Reporting for England and Wales 473 [2013] 2 AC Prest v Prest (SC(E))(SC(E)) Argument A to escape his responsibilities to his wife and children by deploying either (a) a corporate veil or (b) a cloak over the true bene cial ownership of the properties. Here the husband s and the companies failures to provide proper disclosure raised the inference that the companies were bene cially owned by the husband. If so that bene cial interest could be transferred to the wife. Once the wife had asserted a positive case of bene cial ownership B it fell to the husband to produce the evidence which should have been in his gift and which he and the companies were ordered to provide; their failure to do so should result in a nding that the companies hold the bare legal title on trusts of land for the husband as bene cial owner. The word entitled in the Matrimonial Causes Act 1973 is a word in common use; it gives for an easy interpretation. If a reasonable person were asked is Mr Prest entitled to these properties in circumstances where he C could lawfully require their transfer or sale without any legitimate third party objection then they would answer yes . Any arcane interpretation which fails to achieve the underlying purpose of the Act is to be strongly discouraged. Whilst of very limited use, the doctrine of piercing the corporate veil survives and this would be an appropriate case for its deployment.
The court took time for consideration. D 12 June 2013. The following judgments were handed down. LORD SUMPTION JSC
Introduction E 1 This appeal arises out of proceedings for ancillary relief following a divorce. The principal parties before the judge, Moylan J, were Michael and Yasmin Prest. He was born in Nigeria and she in England. Both have dual Nigerian and British nationality. They were married in 1993, and during the marriage the matrimonial home was in England, although the husband was found by the judge to have been resident in Monaco from about 2001 to date. There was also a second home in Nevis. The wife petitioned for F divorce in March 2008. A decree nisi was pronounced in December 2008, and a decree absolute in November 2011. 2 The husband is not party to the appeal in point of form, although he is present in spirit. The appeal concerns only the position of a number of companies belonging to the group known as the Petrodel Group which the judge found to be wholly owned and controlled (directly or through G intermediate entities) by the husband. There were originally seven companies involved, all of which were joined as additional respondents to the wife s application for ancillary relief. They were Petrodel Resources Ltd ( PRL ), Petrodel Resources (Nigeria) Ltd ( PRL Nigeria ), Petrodel Upstream Ltd ( Upstream ), Vermont Petroleum Ltd ( Vermont ), Elysium Diem Ltd, Petrodel Resources (Nevis) Ltd ( PRL Nevis ) and Elysium Diem Ltd (Nevis). Three of these companies, PRL, Upstream and Vermont, all H incorporated in the Isle of Man, are the respondents in this court. PRL was the legal owner of the matrimonial home, which was bought in the name of the company in 2001 but was found by the judge to be held for the husband bene cially. There is no longer any issue about that property, which is apparently in the process of being transferred to the wife. In addition, PRL
' 2013 The Incorporated Council of Law Reporting for England and Wales 478 Prest v Prest (SC(E))(SC(E))[2013] 2 AC Lord Sumption JSC 12 Management control of PRL has always been in the hands of the A husband, ostensibly as chief executive under a contract of employment conferring on him complete discretion in the management of its business. The judge found that none of the companies had ever had any independent directors. The husband is a director of PRL Nigeria, but otherwise the directors are all nominal or professional directors, generally his relatives, who accept directions from him. The directors of PRL are Mr Murphy (the B principal of its corporate secretary) and a lady in Nevis who appears to have been the couple s cleaner there. 13 The ownership of the respondent companies proved to be more di–cult to establish. The husband did not admit to having any personal interest in the shares of any company of the group, and declined to say who the ultimate shareholders were. Substantially all of the issued shares of PRL are owned by PRL Nigeria. Almost all the shares of that company are C owned by PRL Nevis, a company about which very little is known, but whose accounts show substantial balances, apparently derived from trading. The husband s evidence was that the shares of PRL Nevis were owned by its own subsidiary PRL Nigeria. The judge described this as puzzling (para 55) but made no nding as to whether it was true. More recently, it has been suggested that PRL Nevis is owned by a family trust about which, D however, nothing has been disclosed. In the end, it did not matter, because the judge cut through the complexities of the corporate structure by accepting the evidence of the wife and Mr Le Breton that the husband was the true owner of the Petrodel Group, as he had always told them he was, even if the exact means by which he held it remained obscure. That accounted for PRL, PRL Nigeria and PRL Nevis. 14 It also accounted for Vermont, whose shares are held 49% by PRL E and 51% by PRL Nigeria, and Upstream, which had a single issued share held by PRL Nevis. Vermont was and possibly still is a trading company. The husband s evidence was that it began to ship crude oil in 2010. The exact nature of Upstream s business (if any) is unclear. It does not appear to trade. 15 The husband declined to answer the question whether he received any bene ts from PRL other than his salary, saying that this was an F accounting question . The judge, however, made extensive ndings about this. He found that his personal expenditure substantially exceeded his salary and bonuses as chief executive, and that the di›erence was funded entirely by the company. There was no formality involved. The husband simply treated the companies cash balances and property as his own and drew on them as he saw t. The judge found that the husband had G unrestricted access to the companies assets, uncon ned by any board control or by any scruples about the legality of his drawings: para 208.He used PRL s assets to fund his and his family s personal expenditure, including the substantial legal costs incurred in these proceedings. The group was e›ectively . . . the husband s money box which he uses at will : para 218. H Piercing the corporate veil 16 I should rst of all draw attention to the limited sense in which this issue arises at all. Piercing the corporate veil is an expression rather indiscriminately used to describe a number of di›erent things. Properly
' 2013 The Incorporated Council of Law Reporting for England and Wales 479 [2013] 2 AC Prest v Prest (SC(E))(E))(SC Lord Sumption JSC A speaking, it means disregarding the separate personality of the company. There is a range of situations in which the law attributes the acts or property of a company to those who control it, without disregarding its separate legal personality. The controller may be personally liable, generally in addition to the company, for something that he has done as its agent or as a joint actor. Property legally vested in a company may belong bene cially to the B controller, if the arrangements in relation to the property are such as to make the company its controller s nominee or trustee for that purpose. For speci c statutory purposes, a company s legal responsibility may be engaged by the acts or business of an associated company. Examples are the provisions of the Companies Acts governing group accounts or the rules governing infringements of competition law by rms , which may include groups of companies conducting the relevant business as an economic unit. Equitable C remedies, such as an injunction or speci c performance may be available to compel the controller whose personal legal responsibility is engaged to exercise his control in a particular way. But when we speak of piercing the corporate veil, we are not (or should not be) speaking of any of these situations, but only of those cases which are true exceptions to the rule in Salomon v A Salomon & Co Ltd [1897]AC22, i e where a person who owns D and controls a company is said in certain circumstances to be identi ed with it in law by virtue of that ownership and control. 17 Most advanced legal systems recognise corporate legal personality while acknowledging some limits to its logical implications. In civil law jurisdictions, the juridical basis of the exceptions is generally the concept of abuse of rights, to which the International Court of Justice was referring in Case concerning Barcelona Traction, Light and Power Co Ltd (Belgium v E Spain) (Second Phase) [1970] ICJ Rep 3 when it derived from municipal law a limited principle permitting the piercing of the corporate veil in cases of misuse, fraud, malfeasance or evasion of legal obligations. These examples illustrate the breadth, at least as a matter of legal theory, of the concept of abuse of rights, which extends not just to the illegal and improper invocation of a right but to its use for some purpose collateral to that for which it exists. 18 F English law has no general doctrine of this kind. But it has a variety of speci c principles which achieve the same result in some cases. One of these principles is that the law de nes the incidents of most legal relationships between persons (natural or arti cial) on the fundamental assumption that their dealings are honest. The same legal incidents will not necessarily apply if they are not. The principle was stated in its most absolute form by Denning LJ in a famous dictum in Lazarus Estates Ltd v G Beasley [1956] 1 QB 702, 712: No court in this land will allow a person to keep an advantage which he has obtained by fraud. No judgment of a court, no order of a Minister, can be allowed to stand if it has been obtained by fraud. Fraud unravels everything. The court is careful not to nd fraud unless it is distinctly pleaded and proved; but once it is proved, it vitiates judgments, contracts H and all transactions whatsoever . . . The principle is mainly familiar in the context of contracts and other consensual arrangements, in which the e›ect of fraud is to vitiate consent so that the transaction becomes voidable ab initio. But it has been applied altogether more generally, in cases which can be rationalised only on
' 2013 The Incorporated Council of Law Reporting for England and Wales 480 Prest v Prest (SC(E))(E))(SC [2013] 2 AC Lord Sumption JSC grounds of public policy, for example to justify setting aside a public act such A as a judgment, which is in no sense consensual, a jurisdiction which has existed since at least 1775: Duchess of Kingston s Case (1776) 2 Smith s LC (13th ed) 644, 646, 651. Or to abrogate a right derived from a legal status, such as marriage: R v Secretary of State for the Home Department, Ex p Puttick [1981]QB767. Or to disapply a statutory time bar which on the face of the statute applies: Welwyn Hat eld Borough Council v Secretary B of State for Communities and Local Government [2011] 2 AC 304. These decisions (and there are others) illustrate a broader principle governing cases in which the bene t of some apparently absolute legal principle has been obtained by dishonesty. The authorities show that there are limited circumstances in which the law treats the use of a company as a means of evading the law as dishonest for this purpose. 19 The question is heavily burdened by authority, much of it C characterised by incautious dicta and inadequate reasoning. I propose, rst, to examine those cases which seek to rationalise the case law in terms of general principle, and then to look at a number of cases in which the court has been thought, rightly or wrongly, to have pierced the corporate veil in order to identify the critical features of these cases which enabled them to do so. D 20 Almost all the modern analyses of the general principle have taken as their starting point the brief and obiter but in uential statement of Lord Keith of Kinkel in Woolfson v Strathclyde Regional Council 1978 SC (HL) 90. This was an appeal from Scotland in which the House of Lords declined to allow the principal shareholder of a company to recover compensation for the compulsory purchase of a property which the company occupied. The case was decided on its facts, but at p 96, Lord E Keith, delivering the leading speech, observed that it is appropriate to pierce the corporate veil only where special circumstances exist indicating that it is a mere facade concealing the true facts . 21 The rst systematic analysis of the large and disparate body of English case law was undertaken by a strong Court of Appeal in Adams v Cape Industries plc [1990]Ch433 (Slade, Mustill and Ralph Gibson LJJ). F The question at issue in that case was whether the United Kingdom parent of an international mining group which was, at least arguably, managed as a single economic unit was present in the United States for the purpose of making a default judgment of a United States court enforceable against it in England. Among other arguments, it was suggested that it was present in the United States by virtue of the fact that a wholly owned subsidiary was incorporated and carried on business there. Slade LJ, delivering the G judgment of the court, rejected this contention: pp 532—544. The court, adopting Lord Keith s dictum in Woolfson v Strathclyde, held that the corporate veil could be disregarded only in cases where it was being used for a deliberately dishonest purpose: pp 539, 540. Apart from that, and from cases turning on the wording of particular statutes, it held at p 536 that: H the court is not free to disregard the principle of Salomon v A Salomon & Co Ltd [1897]AC22 merely because it considers that justice so requires. Our law, for better or worse, recognises the creation of subsidiary companies, which though in one sense the creatures of their parent companies, will nevertheless under the general law fall to be
' 2013 The Incorporated Council of Law Reporting for England and Wales 487 [2013] 2 AC Prest v Prest (SC(E))(E))(SC Lord Sumption JSC A 32 The same confusion of concepts is, with respect, apparent in Sir Andrew Morritt V-C s analysis in Trustor AB v Smallbone (No 2) [2001] 1 WLR 1177, which I have already considered. The Vice-Chancellor s statement of principle at para 23 that the court was entitled to pierce the corporate veil if the company was used as a device or facade to conceal the true facts thereby avoiding or concealing any liability of those individual(s) B elides the quite di›erent concepts of concealment and avoidance. As I read his reasons for giving judgment against Mr Smallbone, at paras 24—25,he did so on the concealment principle. It had been found at the earlier stage of the litigation that Introcom was simply a vehicle Mr Smallbone used for receiving money from Trustor , and that the company was a device or facade for concealing that fact. On that footing, the company received the money on Mr Smallbone s behalf. This conclusion did not involve piercing C the corporate veil, and did not depend on any nding of impropriety. It was simply an application of the principle summarised by the Sir Andrew Morritt V-C at para 19 of his judgment, that receipt by a company will count as receipt by the shareholder if the company received it as his agent or nominee, but not if it received it in its own right. To decide that question, it was necessary to establish the facts which demonstrated the true legal D relationship between Mr Smallbone and Introcom. Mr Smallbone s ownership and control of Introcom was only one of those facts, not in itself conclusive. Other factors included the circumstances and the source of the receipt, and the nature of the company s other transactions if any. 33 In the Trustor case, as in the Gencor case, the analysis would have been the same if Introcom had been a natural person instead of a company. The evasion principle was not engaged, and indeed could not have been E engaged on the facts of either case. This is because neither Mr Dalby nor Mr Smallbone had used the company s separate legal personality to evade a liability that they would otherwise have had. They were liable to account only if the true facts were that the company had received the money as their agent or nominee. That was proved in both cases. If it had not been, there would have been no receipt, knowing or otherwise, and therefore no claim F to be evaded. The situation was not the same as it had been in Gilford Motor Co v Horne [1933]Ch935 and Jones v Lipman [1962] 1 WLR 832, for in these cases the real actors, Mr Horne and Mr Lipman, had a liability which arose independently of the involvement of the company. 34 These considerations re ect the broader principle that the corporate veil may be pierced only to prevent the abuse of corporate legal personality. It may be an abuse of the separate legal personality of a company to use it to G evade the law or to frustrate its enforcement. It is not an abuse to cause a legal liability to be incurred by the company in the rst place. It is not an abuse to rely on the fact (if it is a fact) that a liability is not the controller s because it is the company s. On the contrary, that is what incorporation is all about. Thus in a case like VTB Capital v Nutritek [2012] 2 Lloyd s Rep 313;[2013] 2 AC 337, where the argument was that the corporate veil H should be pierced so as to make the controllers of a company jointly and severally liable on the company s contract, the fundamental objection to the argument was that the principle was being invoked so as to create a new liability that would not otherwise exist. The objection to that argument is obvious in the case of a consensual liability under a contract, where the ostensible contracting parties never intended that any one else should be
' 2013 The Incorporated Council of Law Reporting for England and Wales 488 Prest v Prest (SC(E))(E))(SC [2013] 2 AC Lord Sumption JSC party to it. But the objection would have been just as strong if the liability in A question had not been consensual. 35 I conclude that there is a limited principle of English law which applies when a person is under an existing legal obligation or liability or subject to an existing legal restriction which he deliberately evades or whose enforcement he deliberately frustrates by interposing a company under his control. The court may then pierce the corporate veil for the purpose, and B only for the purpose, of depriving the company or its controller of the advantage that they would otherwise have obtained by the company s separate legal personality. The principle is properly described as a limited one, because in almost every case where the test is satis ed, the facts will in practice disclose a legal relationship between the company and its controller which will make it unnecessary to pierce the corporate veil. Like Munby J in Ben Hashem v Al Shayif [2009] 1 FLR 115, I consider that if it is not necessary C to pierce the corporate veil, it is not appropriate to do so, because on that footing there is no public policy imperative which justi es that course. I therefore disagree with the Court of Appeal in VTB Capital v Nutritek [2012] 2 Lloyd s Rep 313 who suggested otherwise at para 79. For all of these reasons, the principle has been recognised far more often than it has been applied. But the recognition of a small residual category of cases where the D abuse of the corporate veil to evade or frustrate the law can be addressed only by disregarding the legal personality of the company is, I believe, consistent with authority and with long-standing principles of legal policy. 36 In the present case, Moylan J held that he could not pierce the corporate veil under the general law without some relevant impropriety, and declined to nd that there was any. In my view he was right about this. The husband has acted improperly in many ways. In the rst place, he has E misapplied the assets of his companies for his own bene t, but in doing that he was neither concealing nor evading any legal obligation owed to his wife. Nor, more generally, was he concealing or evading the law relating to the distribution of assets of a marriage on its dissolution. It cannot follow that the court should disregard the legal personality of the companies with the same insouciance as he did. Secondly, the husband has made use of the opacity of the Petrodel Group s corporate structure to deny being its owner. F But that, as the judge pointed out, at para 219, is simply [the] husband giving false evidence . It may engage what I have called the concealment principle, but that simply means that the court must ascertain the truth that he has concealed, as it has done. The problem in the present case is that the legal interest in the properties is vested in the companies and not in the husband. They were vested in the companies long before the marriage broke up. G Whatever the husband s reasons for organising things in that way, there is no evidence that he was seeking to avoid any obligation which is relevant in these proceedings. The judge found that his purpose was wealth protection and the avoidance of tax : para 218. It follows that the piercing of the corporate veil cannot be justi ed in this case by reference to any general principle of law.
Section 24(1)(a) of the Matrimonial Causes Act 1973 H 37 If there is no justi cation as a matter of general legal principle for piercing the corporate veil, I nd it impossible to say that a special and wider principle applies in matrimonial proceedings by virtue of section 24(1)(a) of the Matrimonial Causes Act 1973. The language of this provision is clear. It
' 2013 The Incorporated Council of Law Reporting for England and Wales 498 Prest v Prest (SC(E))(E))(SC [2013] 2 AC Lord Neuberger of Abbotsbury PSC LORD NEUBERGER OF ABBOTSBURY PSC A 57 I agree that Mrs Prest s appeal succeeds. More particularly, I agree that her appeal should be (i) allowed on the basis that the properties were acquired and held by the respondent companies on trust for the husband, but (ii) dismissed in so far as it relies on piercing the veil of incorporation, or on section 24(1)(a) or (c) of the Matrimonial Causes Act 1973. 58 I agree with all that Lord Sumption JSC says on (i) the construction B of section 24(1)(a) of the 1973 Act, in paras 37—42, (ii) the trust issue, in his masterly analysis of the facts and inferences to be drawn from them, in paras 43—52, (iii) the point sought to be raised under section 24(1)(c), in para 53, and (iv) his conclusions in paras 55 and 56, and there is nothing I wish to add on those issues. 59 I wish, however, to add a little to what Lord Sumption JSC says on the question of whether, and if so, in what circumstances, the court has C power to pierce the corporate veil in the absence of speci c statutory authority to do so. 60 I agree that there are two types of case where judges have described their decisions as being based on piercing the veil, namely those concerned with concealment and those concerned with evasion. It seems to me that Staughton LJ had a similar classi cation in mind in Atlas Maritime Co SA v D Avalon Maritime Ltd (No 1) [1991] 4 All ER 769, 779G (quoted in VTB Capital plc v Nutritek International Corpn [2013] 2 AC 337, para 118), where he sought to distinguish between lifting and piercing the corporate veil. 61 I also agree that cases concerned with concealment do not involve piercing the corporate veil at all. They simply involve the application of E conventional legal principles to an arrangement which happens to include a company being interposed to disguise the true nature of that arrangement. Accordingly, if piercing the corporate veil has any role to play, it is in connection with evasion. 62 Furthermore, I agree that, if the court has power to pierce the corporate veil, Munby J was correct in Ben Hashem v Al Shayif [2009] 1 FLR 115 to suggest that it could only do so in favour of a party when all F other, more conventional, remedies have proved to be of no assistance (and therefore I disagree with the Court of Appeal in VTB Capital v Nutritek [2012] 2 Lloyd s Rep 313, para 79, who suggested otherwise). 63 However, as in the recent decision of this court in VTB v Nutritek,it is not necessary to decide whether there is a principle that it is open to a court, without statutory authority (or, possibly, in the absence of the G intention of contracting parties), to pierce the veil of incorporation ( the doctrine ), and, if it is, the scope, or boundaries, of the doctrine. 64 However, I can see considerable force in the view that it is appropriate for us to address those matters now. This is the second case in the space of a few months when the doctrine has been invoked before this court on what are, on any view, inappropriate grounds. It is also clear from H the cases and academic articles that the law relating to the doctrine is unsatisfactory and confused. Those cases and articles appear to me to suggest that (i) there is not a single instance in this jurisdiction where the doctrine has been invoked properly and successfully, (ii) there is doubt as to whether the doctrine should exist, and (iii) it is impossible to discern any
' 2013 The Incorporated Council of Law Reporting for England and Wales 503 [2013] 2 AC Prest v Prest (SC(E))(SC(E)) Lord Neuberger of Abbotsbury PSC A piercing the corporate veil, which accords with normal legal principles, re ects previous judicial reasoning (so far as it can be discerned and reconciled), and represents a practical solution (which hopefully will avoid the problems summarised in para 75 above), I believe that it would be right to adopt it as a de nition of the doctrine. 81 Having read what Lord Sumption JSC says in his judgment, 17 18 27 28 34 35 B especially in paras , , , , and , I am persuaded by his formulation in para 35, namely that the doctrine should only be invoked where a person is under an existing legal obligation or liability or subject to an existing legal restriction which he deliberately evades or whose enforcement he deliberately frustrates by interposing a company under his control . 82 It appears to me that such a clear and limited doctrine would not fall C foul of at least most of the strictures which have been made of the doctrine. In particular, (i) it should be of value in the few cases where it can be properly invoked; (ii) it is, I believe and hope, su–ciently clear as to render it unlikely to be raised in inappropriate cases; and (iii) it does not cut across the rule in Salomon v A Salomon & Co Ltd [1897]AC22 because it is consistent with conventional legal principles. 83 D It is only right to acknowledge that this limited doctrine may not, on analysis, be limited to piercing the corporate veil. However, there are three points to be made about that formulation. In so far as it is based on fraud unravels everything , as discussed by Lord Sumption JSC in para 18, the formulation simply involves the invocation of a well established principle, which exists independently of the doctrine. In any event, the formulation is not, on analysis, a statement about piercing the corporate veil at all. Thus, it E would presumably apply equally to a person who transfers assets to a spouse or civil partner, rather than to a company. Further, at least in some cases where it may be relied on, it could probably be analysed as being based on agency or trusteeship especially in the light of the words under his control . However, if either or both those points were correct, it would not undermine Lord Sumption JSC s characterisation of the doctrine: it would, if anything, F serve to con rm the existence of the doctrine, albeit as an aspect of a more conventional principle. And if the formulation is intended to go wider than the application of fraud unravels everything , it seems to me questionable whether it would be right for the court to take the course of arrogating to itself the right to step in and undo transactions, save where there is a well established and principled ground for doing so. Such a course is, I would have thought, at least normally, a matter for the legislature. Indeed G Parliament has decided to legislate to this e›ect in speci ed and limited circumstances with protection for third parties, in provisions such as section 37 of the Matrimonial Causes Act 1973 and section 423 of the Insolvency Act 1986.
BARONESS HALE OF RICHMOND JSC (with whom LORD WILSON JSC H agreed) 84 I agree that this appeal should succeed, on the basis that the properties in question were held by the respondent companies on trust for the husband. As he is bene cially entitled to them, they fall within the scope of the court s power to make transfer of property orders under section 24(1)(a) of the Matrimonial Causes Act 1973. It also means that the
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FKDUWFKDUW ) TAB 5 SUPREME COURT OF CANADA CITATION: Kazemi Estate v. Islamic Republic of Iran, DATE: 20141010 2014 SCC 62 DOCKET: 35034 BETWEEN: Estate of the Late Zahra (Ziba) Kazemi and Stephan (Salman) Hashemi Appellants and Islamic Republic of Iran, Ayatollah Sayyid Ali Khamenei, Saeed Mortazavi, Mohammad Bakhshi and Attorney General of Canada Respondents - and - Canadian Lawyers for International Human Rights, Amnistie internationale, Section Canada francophone, Redress Trust Ltd., Canadian Association of Refugee Lawyers, British Columbia Civil Liberties Association, Canadian Bar Association, Canadian Civil Liberties Association, Canadian Centre for International Justice, David Asper Centre for Constitutional Rights, International Human Rights Program at the University of Toronto Faculty of Law and Iran Human Rights Documentation Center Interveners CORAM: McLachlin C.J. and LeBel, Abella, Rothstein, Cromwell, Moldaver and Karakatsanis JJ. REASONS FOR JUDGMENT: LeBel J. (McLachlin C.J. and Rothstein, Cromwell, (paras. 1 to 171) Moldaver and Karakatsanis JJ. concurring) DISSENTING REASONS Abella J. (paras. 172 to 231) NOTE: This document is subject to editorial revision before its reproduction in final form in the Canada Supreme Court Reports. confirms that foreign states are immune from the jurisdiction of our domestic courts “except as provided by th[e] Act” (Bouzari v. Islamic Republic of Iran (2004), 71 O.R. (3d) 675 (C.A.), at para. 42; SIA, s. 3). Significantly, the SIA does not apply to criminal proceedings, suggesting that Parliament was satisfied that the common law with respect to state immunity should continue governing that area of the law (SIA, s. 18). [43] When enacting the SIA, Parliament recognized a number of exceptions to the broad scope of state immunity. Besides the commercial activity exception, canvassed above, Canada has chosen to include exceptions to immunity in situations where a foreign state waives such right, as well as for cases involving: death, bodily injury, or damage to property occurring in Canada; maritime matters; and foreign state property in Canada (SIA, ss. 4, 6, 7 and 8; Currie, at pp. 395-400; Emanuelli, at pp. 346-49; J.-M. Arbour and G. Parent, Droit international public (6th ed. 2012), at pp. 500-8.3). [44] In 2012, Parliament amended the SIA to include an additional exception to state immunity for certain foreign states that have supported terrorist activity (Arbour and Parent, at pp. 508.1-8.3). Under this new legislative regime, a foreign state may be sued in Canada if (1) the act that the state committed took place on or after January 1, 1985 and (2) the foreign state accused of supporting terrorism is included on a list created by the Governor in Council (s. 6.1 SIA; Library of Parliament, Legislative Summary: Bill C-10 (2012), at s. 2.2.2.1). Although no argument concerning the nature or constitutionality of the terrorism exception was advanced before this Court, it is nonetheless relevant to the case at hand. If nothing else, it reveals that Parliament can and does take active steps to address, and in this case pre-empt, emergent international challenges (Ranganathan, at p. 386), thereby reinforcing the conclusion, discussed below, that the SIA is intended to be an exhaustive codification of Canadian law of state immunity in civil suits. I also note in passing, with all due caution, that when the terrorism exception bill, was before Parliament, it was criticized on numerous occasions for failing to create an exception to state immunity for civil proceedings involving allegations of torture, genocide and other grave crimes (Legislative Summary: Bill C-10, s. 2.1.4). Indeed, Private Member Bill C-483 proposed to create such an exception but it never became law. More broadly, the amendment to the SIA brought by Parliament in 2012 demonstrates that forum states (i.e. states providing jurisdiction) have a large and continuing role to play in determining the scope and extent of state immunity. [45] It follows that state immunity is not solely a rule of customary international law. It also reflects domestic choices made for policy reasons, particularly in matters of international relations. As Fox and Webb note, although immunity as a general rule is recognized by international law, the “precise extent and manner of [the] application” of state immunity is determined by forum states (p. 17). In Canada, therefore, it is first towards Parliament that one must turn when ascertaining the contours of state immunity. (2) Torture [46] As discussed below, in drafting the SIA, Canada has made a choice to uphold state immunity as the oil that allows for the smooth functioning of the machinery of international relations. Canada has given priority to a foreign state’s immunity over civil redress for citizens who have been tortured abroad. This policy choice is not a comment about the evils of torture, but rather an indication of what principles Parliament has chosen to promote given Canada’s role and that of its government in the international community. The SIA cannot be read as suggesting that Canada has abandoned its commitment to the universal prohibition of torture. This commitment is strong, and developments in recent years have confirmed it. [47] In 2002, in the case of Suresh v. Canada (Minister of Citizenship and Immigration), 2002 SCC 1, [2002] 1 S.C.R. 3, although there were “compelling indicia” to confirm that the prohibition of torture had reached peremptory status, the Court did not make a binding statement to this effect (paras. 62-65). Twelve years later, our Court cannot entertain any doubt that the prohibition of torture has reached the level of a peremptory norm (a peremptory norm, or jus cogens norm is a fundamental tenet of international law that is non-derogable: Currie, at p. 583; Emanuelli, at pp. 168-69; Vienna Convention on the Law of Treaties, Can. T.S. 1980 No. 37, art. 53). [48] There are a number of multilateral instruments which explicitly prohibit torture (see Universal Declaration of Human Rights, G.A. Res. 217 A (III), U.N. (2) Does International Law Render Section 3(1) Ambiguous or Otherwise Require it To Be Interpreted to Include an Exception to State Immunity in Cases of Torture? [59] A number of interveners argue that s. 3(1) of the Act is ambiguous and should therefore be interpreted in accordance with the common law, the Charter and international law. The intervener the Canadian Civil Liberties Association submits that the SIA is ambiguous because it does not clearly extend to cases involving alleged breaches of jus cogens norms (factum, at paras. 8-10). The British Columbia Civil Liberties Association (“BCCLA”) similarly asserts that s. 3 of the Act is ambiguous (factum, at para. 8). The intervener Amnistie Internationale, Section Canada Francophone argues that s. 3 of the Act only shields foreign states with respect to their [TRANSLATION] “public acts”, acts which do not include torture (factum, at para. 1). [60] The current state of international law regarding redress for victims of torture does not alter the SIA, or make it ambiguous. International law cannot be used to support an interpretation that is not permitted by the words of the statute. Likewise, the presumption of conformity does not overthrow clear legislative intent (see S. Beaulac, “‘Texture ouverte’, droit international et interpretation de la Charte canadienne”, in E. Mendes and S. Beaulac, eds., Canadian Charter of Rights and Freedoms (5th ed. 2013), at pp. 231-35). Indeed, the presumption that legislation will conform to international law remains just that — merely a presumption. This Court has cautioned that the presumption can be rebutted by the clear words of the statute under consideration (Hape, at para. 53-54). In the present case, the SIA lists the exceptions to state immunity exhaustively. Canada’s domestic legal order, as Parliament has framed it, prevails. [61] Even if an exception to state immunity in civil proceedings for acts of torture had reached the status of a customary rule of international law, which, as I conclude below, it has not, such an exception could not be adopted as a common law exception to s. 3(1) of the SIA as it would be in clear conflict with the SIA (Hape, at para. 36). Moreover, the mere existence of a customary rule in international law does not automatically incorporate that rule into the domestic legal order (L. LeBel and G. Chao, “The Rise of International Law in Canadian Constitutional Litigation: Fugue or Fusion? Recent Developments and Challenges in Internalizing International Law” (2002), 16 S.C.L.R. (2d) 23, at p. 35). Should an exception to state immunity for acts of torture have become customary international law, such a rule could likely be permissive — and not mandatory — thereby, requiring legislative action to become Canadian law (Hape, at para. 36; dissenting reasons of La Forest J. in R. v. Finta, [1994] 1 S.C.R. 701, at pp. 734-35; LeBel and Chao, at p. 36; G. van Ert, Using International Law in Canadian Courts (2nd ed. 2008), at pp. 218-23). [62] Further, the reading of “except as provided by”, which indicates an exhaustive list, is in line with the purpose and scheme of the legislation. A complete codification of state immunity that ousts the common law and international law, and pending appeal of that decision to the Supreme Court of the United States (Matar v. Dichter, 563 F.3d 9 (2nd Cir. 2009); Belhas v. Ya’alon, 515 F.3d 1279 (D.C. Circuit 2008); Ye v. Zemin, 383 F.3d 620 (7th Cir. 2004)). Moreover, Samantar II was decided in the context of a very different legislative and governmental backdrop. The court in that case expressly stated that Congress’s enactment of the Torture Victim Protection Act of 1991, Pub. L. 102-256, 106 Stat. 73, was “instructive” in reaching its determination (p. 774). The court also gave “substantial weight” to the Statement of Interest issued by the State Department suggesting that the court should deny the foreign defendant immunity (p. 773). Essentially, the court relied heavily on governmental intentions when deciding to deny immunity. [107] In the case at hand, Canada has no equivalent to the Torture Victim Protection Act of 1991 that would create a cause of action for torture committed abroad, nor have we been presented with a statement of any sort from the government suggesting that Mr. Mortazavi and Mr. Bakhshi should be denied immunity. Parliament has given no indication whatsoever that the courts are to deem torture an “unofficial act” and that a universal civil jurisdiction has been created allowing foreign officials to be sued in our courts. Creating this kind of jurisdiction would have a potentially considerable impact on Canada’s international relations. This decision is to be made by Parliament, not the courts. [108] I further note that the development of the common law should be gradual and that it should develop in line with norms accepted throughout the international community. As was determined in Canada (Attorney General) v. Bedford, 2013 SCC 72, [2013] 3 S.C.R. 1101, “[c]ertainty in the law requires that courts follow and apply authoritative precedents. Indeed, this is the foundational principle upon which the common law relies” (para. 38). The common law should not be used by the courts to determine complex policy issues in the absence of a strong legal foundation or obvious and applicable precedents that demonstrate that a new consensus is emerging. To do otherwise would be to abandon all certainty that the common law might hold. Particularly in cases of international law, it is appropriate for Canadian courts only to follow the “bulk of the authority” and not change the law drastically based on an emerging idea that is in its conceptual infancy (Jones v. United Kingdom, at para. 213). The “bulk of the authority” in this situation confirms that a “[s]tate’s right to immunity may not be circumvented by suing its servants or agents instead” (ibid.). [109] Given the definition of torture outlined above and the lack of evidence of an exception to state immunity for a jus cogens violation, I hold that it is possible for torture to be an official act. I agree with Lord Hoffman in Jones v. Ministry of the Interior of Saudi Arabia that “it is not for a national court to ‘develop’ international law by unilaterally adopting a version of that law which, however desirable, forward- looking and reflective of values it may be, is simply not accepted by other states” or by the forum state (para. 63). [110] This therefore confirms that neither Mr. Hashemi nor Ms. Kazemi’s estate may avail themselves of a Canadian court in order to sue Iran or its [156] Similarly, in Fang v. Jiang, [2007] N.Z.A.R. 420, the High Court of New Zealand agreed with the House of Lords in Jones v. Ministry of the Interior of Saudi Arabia and held that there was no exception to state immunity claims in situations of torture. [157] Taking the above as indicative of lack of state practice and opinio juris, I must conclude that Canada is not obligated by the jus cogens prohibition on torture to open its courts so that its citizens may seek civil redress for torture committed abroad. This is not the meaning and scope of the peremptory norm. Consequently, failing to grant such access would not be a breach of the principles of fundamental justice. However, I agree with the I.C.J. in Germany v. Italy that “recognizing the immunity of a foreign State in accordance with customary international law does not amount to recognizing as lawful a situation created by the breach of a jus cogens rule, or rendering aid and assistance in maintaining that situation” (para. 93). [158] The David Asper Centre for Constitutional Rights (“DAC”) and the International Human Rights Program (“IHRP”) submit that s. 3(1) of the SIA is unconstitutional to the extent that it prevents access to an effective remedy for gross human rights violations. They argue that it is a principle of fundamental justice that “where there is a right, there must be a remedy for its violation” (factum, at para. 6). [159] While I agree that “where there is a right, there must be a remedy for its violation” is a legal maxim, I cannot accept that it necessarily constitutes a principle of fundamental justice. While rights would be illusory if there was never a way to remedy their violation, the reality is that certain rights do exist even though remedies for their violation may be limited by procedural bars. Remedies are by no means automatic or unlimited; there is no societal consensus that an effective remedy is always guaranteed to compensate for every rights violation. [160] Substantive rights are frequently implemented within a framework of procedural limitations. There are numerous examples of substantive rights with procedural limitations in Canada. For instance, Canadians have a right to be free from defamation or libel, but in order to sue in Canada, the plaintiff must prove that there is a real and substantial connection between the alleged tortious action and the forum (Breeden v. Black, 2012 SCC 19, [2012] 1 S.C.R. 666). Further, Canadians have a right to be free from assault, but in order to sue for consequential relief, they must bring their claim within a specified period of time (see, for example, the Limitations Act, 2002, S.O. 2002, c. 24, Sch. B, ss. 4 and 10). [161] Similarly, individuals have a right to be free from torture, but state immunity is a procedural bar which prevents an individual from bringing a civil claim against a foreign state. State immunity regulates a state’s exercise of jurisdiction over another foreign state, which is a procedural matter. This regulation is distinct from the substantive law which would determine whether the alleged acts of torture were lawful (Germany v. Italy, at para. 93; Fox and Webb at p. 21). [162] The interveners the DAC and the IHRP have failed to establish that there is consensus that people must always have a right to an effective remedy and that this is necessary to the functioning of the legal system (factum, at paras. 17 and 20). As indicated above, there are many examples in Canadian law where remedies are subordinated to other concerns in appropriate contexts. Society does not always deem it essential that the right to a remedy “trump all other concerns in the administration of justice” (Canadian Foundation for Children, Youth and the Law, at para. 10). [163] Similarly, there is no evidence of a consensus that the particular remedy requested in this instance (a civil action in domestic courts for human rights violations committed abroad) is necessary to the proper functioning of the international legal system. Although my colleague Justice Abella and many interveners point to international instruments touting the importance of effective remedies, these instruments are not consistently interpreted as ensuring access to domestic courts to pursue civil actions for torture committed abroad to the detriment of all other interests. Indeed, it is clear that, in the international community, the right to a civil remedy will give way to procedural bars that are crucial to the functioning of sovereign equality such as state immunity (see, for example, Germany v. Italy, at paras. 82 and 84). [164] Further, I have difficulty accepting that the maxim “where there is a right, there must be a remedy for its violation” discloses a manageable standard as required by Malmo-Levine. The DAC and the IHRP rely on this Court’s decisions in Doucet- Boudreau v. Nova Scotia (Minister of Education), 2003 SCC 62, [2003] 3 S.C.R. 3 and Vancouver (City) v. Ward, 2010 SCC 27, [2010] 2 S.C.R. 28, in attempting to define the term “a remedy”, or more precisely “an appropriate and just remedy”. Our Court found that “an appropriate and just remedy” will (1) meaningfully vindicate the rights and freedoms of the claimants, (2) employ means that are legitimate within the framework of our constitutional democracy, (3) be a judicial remedy which vindicates the right while invoking the function and powers of the court, and (4) be fair to the party against whom the order is made (Doucet-Boudreau, at paras. 55-58). [165] While these are helpful guiding principles, they are not concrete enough to guarantee a predictable result. Determining whether a remedy will truly compensate for a violation of one’s rights is an intensely personal and subjective matter. What will vindicate the violation of one person’s rights will not come close to satisfying another individual. [166] Much like the notion of “the best interests of the child” discussed in Canadian Foundation for Children, Youth and the Law, the idea of “an appropriate and just remedy” and “meaningful vindication” to properly compensate for a rights violation is inevitably highly contextual and subject to dispute; reasonable people may well disagree about the result that its application will yield . . . . It does not function as a principle of fundamental justice setting out our minimum requirements for the dispensation of justice. (Canadian Foundation for Children, Youth and the Law, at para. 11) [167] For these reasons, I conclude that while the application of s. 3(1) of the SIA in cases of torture may engage security of the person, no identifiable principle of fundamental justice has been violated. As a result, s. 3(1) of the SIA does not violate s. 7 of the Charter. VII. Conclusion [168] With regard to exceptions to state immunity, Professor H. H. Koh famously asked, “if contracts, why not torture?” (“Transnational Public Law Litigation” (1991), 100 Yale L.J. 2347, at p. 2365). The answer is simple. Parliament has decided as much. [169] State immunity is a complex doctrine that is shaped by constantly evolving international relations. Determining the exceptions to immunity requires a thorough knowledge of diplomacy and international politics and a careful weighing of national interests. Since the introduction of the SIA, such a task belongs to Parliament or the government, though decisions and laws pertaining to international affairs may be subject to constitutional scrutiny under the Charter. In this sense, there is no Charter free zone and the courts may have to play a part, as they have done in the past (Operation Dismantle v. The Queen, [1985] 1 S.C.R. 441; Canada (Prime Minister) v. Khadr. It is not, however, this Court’s task to intervene in delicate international policy making. TAB6 ;= 2#3 (!26!2$ #/,,%'% C #!.!$! #OMMISSIONER OF 0ATENTS !PPELLANT #OMMISSAIRE AUX BREVETS !PPELANT V C 0RESIDENT AND &ELLOWS