Monday, 30 July 2012

Claims Against Shareholders....Not So Fast!

For over a hundred years, it has been a basic principle of corporate law that shareholders and corporations have distinct legal personalities.  As the House of the Lords explained in the venerable decision in Salomon v. A. Salomon & Co. Ltd., creditors of a company cannot sue its shareholders to recover debts.  However, in certain circumstances, courts will lift the "corporate veil" and will allow a claim against a shareholder for a wrong done by the company.  For example, where the company is in effect shareholder's alter ego or in case of fraud, in the sense that the company "is used to effect a purpose or commit an act which the shareholder could not effect or commit."

Another venerable principle of corporate law - the Said v. Butt rule - is that claims directors are not liable for directing their corporation to commit a wrongful act unless they have committed an independent wrongful act.  To sustain a claim against a director, material facts underlying the independent tort must be specifically pled.

In LaPrairie Crane (Alberta) Ltd. v. Triton Projects Inc., 2012 BCSC 1124, Master Keighley brought these two principles together.  Although without any references to authorities, the Master refused to add a corporate defendant's shareholder as a defendant in the action, finding that no claim against the shareholder was articulated in the pleadings, and no evidence supporting a claim was adduced:

I have reviewed the proposed Amended Notice of Civil Claim ... which deal with the allegations against the proposed defendant Churchill.  The basis for these proposed claims is essentially that Churchill was a shareholder of Triton at the material time.  I am not satisfied, in the absence of other evidence, that the mere fact that Churchill held the shares of Triton is sufficient to render it liable under a contract entered into by the latter.  I am not satisfied, in spite of the relatively “low threshold” required by the subrule that there exists between Triton and Churchill a potential claim which is not frivolous or which would form the basis of a possible cause of action.