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Corporate Identification (aka Attribution) Doctrine

. Golden Oaks Enterprises Inc. v. Scott

In Golden Oaks Enterprises Inc. v. Scott (Ont CA, 2022) the Court of Appeal extensively considered the 'corporate attribution doctrine':
[39] In addressing the question of when Golden Oaks could reasonably have first discovered the claim, the appellants argue that Golden Oaks must be imputed with Mr. Lacasse’s knowledge of the fraud under the corporate attribution doctrine (also referred to in the case law as the corporate identification doctrine) pursuant to the Supreme Court’s decision in Canadian Dredge & Dock Co. v. The Queen, 1985 CanLII 32 (SCC), [1985] 1 S.C.R. 662 (“Canadian Dredge”).

[40] The test for corporate attribution as set out in Canadian Dredge requires the party relying on the doctrine to meet two conditions: (1) the wrongdoer must be the directing mind of the corporation; and (2) the wrongful actions of the directing mind must have been done within the scope of his or her authority; pp. 681-82. Further, under this analysis, an individual will cease to be a directing mind unless the action (1) was not totally in fraud of the corporation; and (2) was by design or result partly for the benefit of the corporation; pp. 713-14.

[41] In Deloitte & Touche v. Livent Inc. (Receiver of), 2017 SCC 63 (“Livent”), the Supreme Court emphasized that Canadian Dredge was a criminal law case and addressed the question of who should bear the criminal culpability for the actions of a corporation’s directing mind. Justices Gascon and Brown, writing for the majority in Livent, observed that the policy rationale for the corporate attribution rule differed in civil settings, at para. 103:
While public policy and judicial necessity may favour imputing the corporation with the actions of its directing minds in certain criminal prosecutions, the same cannot be said of attributing the actions of a directing mind for the purposes of a civil suit in the context of an auditor’s negligent preparation of a statutory audit. As indicated above, the very purpose of a statutory audit is to provide a means by which fraud and wrongdoing may be discovered. It follows that denying liability on the basis that an individual within the corporation has engaged in the very action that the auditor was enlisted to protect against would render the statutory audit meaningless (D. L. MacPherson, “Emaciating the Statutory Audit — A Comment on Hart Building Supplies Ltd. v. Deloitte & Touche” (2005), 41 Can. Bus. L.J. 471). As Livent submitted, it would be perverse to deny auditor’s liability for negligently failing to detect fraud “where the harm [to the corporation] is likely to occur and likely to be most serious” (R.F., at para. 94).
[42] In Livent, the Supreme Court recognized that courts retain a discretion to refrain from applying the corporate attribution rule where, in the circumstances, it would not be in the public interest to do so (at para. 104). The Court exercised that discretion to not apply the doctrine in the circumstances of Livent, where an auditor sought to avoid liability for negligent misrepresentation by raising a defence of illegality. Deloitte, the auditor, argued that the illegal actions of certain of Livent’s directors should be attributed to the corporation, thus barring the recovery that the corporation sought from Deloitte. The Court declined to apply the corporate attribution doctrine on the basis that it would not have been in the public interest to do so.

[43] The Supreme Court again addressed the scope of the corporate attribution doctrine in Christine DeJong Medicine Professional Corp. v. DBDC Spadina Ltd., 2019 SCC 30. This case involved a fraud perpetrated through a multi million-dollar commercial real estate deal by the Waltons. DBDC and Dr. DeJong’s corporations had invested monies with the Waltons, who moved the money in and out of numerous corporations. Initially, DBDC brought an oppression application against the Waltons and joined the DeJong companies as respondents. Corporate attribution was invoked by DBDC to recover in priority to the DeJong corporations. DBDC contended that the remedy of knowing receipt and knowing assistance should be awarded against the DeJong companies because Norma Walton was a directing mind of those corporations, and her knowledge and acts should be imputed to those corporations.

[44] A majority of this court concluded that corporate attribution was appropriate. Blair J.A., writing for the majority, held that policy considerations in the context of a complex, multi-corporation, multi-party fraud supported a more flexible and "less demanding" approach to the corporate attribution criteria than in the criminal context. Van Rensburg J.A. dissented, disagreeing with the proposition that there should be a "less demanding application" of the second and third criteria of the Canadian Dredge test in the context of a complex multi-party investment fraud. She concluded that there was no policy reason supporting the use of corporate attribution to impose liability on the DeJong corporations for Walton’s wrongs.

[45] The Supreme Court affirmed van Rensburg J.A.’s approach. The Court reiterated the public policy discretion to refrain from applying the corporate attribution principle, stating, at para. 2:
In view of the statement of the majority at the Court of Appeal that this Court’s decision in Deloitte & Touche v. Livent Inc. (Receiver of), 2017 SCC 63, [2017] 2 S.C.R. 855 (S.C.C.) , invited a “flexible” application of the criteria stated in R. v. McNamara, 1985 CanLII 32 (SCC), [1985] 1 S.C.R. 662 (S.C.C.) for attributing individual wrongdoing to a corporation, we respectfully add this. What the Court directed in Livent, at para. 104, was that even where those criteria are satisfied, “courts retain the discretion to refrain from applying [corporate attribution] where, in the circumstances of the case, it would not be in the public interest to do so” (emphasis added). In other words, while the presence of public interest concerns may heighten the burden on the party seeking to have the actions of a directing mind attributed to a corporation, Canadian Dredge states minimal criteria that must always be met. The appeal is allowed, with costs throughout.
[46] In Canada Business Corporations Manual, looseleaf (2022 Release 4), 2nd ed. (Toronto: Thomson Reuters Canada Ltd.) at § 10:5, Jack J. Quinn suggested that, in endorsing van Rensburg J.A.’s dissenting reasons, the Supreme Court was discouraging the victims of fraud from suing each other. On this view, victims of a multi-party fraud should not use the corporate attribution principle for the purpose of enlarging their potential recovery at the expense of their fellow victims.

[47] Subsequently, in Caja Paraguaya de Jubilaciones y Pensiones del Personal de Itaipu Binacional v. Garcia, 2020 ONCA 124 (“Caja Paraguaya”), this court considered the discretion not to apply the corporate attribution doctrine in the context of an ex turpi causa defence to an action for fraudulent misrepresentation and breach of fiduciary duty. The court reiterated that “The corporate identification doctrine is not a free-standing rule; rather it is used for the purposes of applying the ex turpi causa doctrine which is also relied on by the appellants. The overriding concern is whether recovery by the respondent would damage the integrity of the legal system. See: Deloitte & Touche v. Livent Inc. (Receiver of), 2017 SCC 63, [2017] 2 S.C.R. 855, at para. 98.”

[48] In Caja Paraguaya, the court upheld the trial judge’s decision not to apply corporate attribution on public interest grounds, explaining, at para. 17,
Perversely, its application would deprive a company, vulnerable to fraud because of the neglect and corruption of board members and officers, of any civil remedy, to the detriment of its shareholders and legitimate creditors. Meanwhile, it would permit fraudsters to pocket their gains with civil impunity.
[49] This court recently considered the application of the corporate attribution doctrine in the bankruptcy context in Ernst & Young Inc. v. Aquino, 2022 ONCA 202. In that case, which involved the application of the corporate attribution doctrine for purposes of s. 96 of the BIA, and the determination of the “intention of the debtor” in that context, Lauwers J.A. stated, at paras. 77-79:
[77] The application of these principles is not clear in the bankruptcy arena, where the policy currents flow rather differently. In particular, attributing the intent of a company’s directing mind to the company itself can hardly be said to unjustly prejudice the company in the bankruptcy context, when the company is no longer anything more than a bundle of assets to be liquidated with the proceeds distributed to creditors. An approach that would favour the interests of fraudsters over those of creditors seems counterintuitive and should not be quickly adopted.

[78] In light of these considerations, I would reframe the test for imputing the intent of a directing mind to a corporation in the bankruptcy context this way: The underlying question here is who should bear responsibility for the fraudulent acts of a company’s directing mind that are done within the scope of his or her authority – the fraudsters or the creditors?

[79] Permitting the fraudsters to get a benefit at the expense of creditors would be perverse. The way to avoid that perverse outcome is to attach the fraudulent intentions of John Aquino to Bondfield and Forma-Com in order to achieve the social purpose of providing proper redress to creditors, which is the core aim of s. 96 of the BIA. The application judge did not err in finding that the “intention of the debtor” under s. 96 can include “the intention of individuals in control of the corporation, regardless of whether those individuals had any intent to defraud the corporation itself.”[Footnote omitted.]
[50] The following principles can be taken from these decisions which have considered the discretion recognized in Livent not to apply the corporate attribution doctrine:
- courts should be sensitive to the context and field of law in which corporate attribution arises;

- the exercise of this discretion is grounded in public policy and the social implications of holding a corporation accountable; and

- uses of corporate attribution which encourage victims of fraud to enlarge their recovery at the expense of other victims, or which permit those who have benefitted from fraud to insulate themselves from accountability against other parties who are victim of the fraud are to be avoided.
[51] Applying these considerations in this case, there are strong public policy grounds to resist permitting those who benefited from the usurious interest scheme perpetrated by Lacasse from avoiding liability in the Trustee’s unjust enrichment action through the application of the corporate attribution doctrine, at the expense of other creditors to Golden Oaks.

[52] In recognizing the discretion not to apply the corporate attribution doctrine, however, the Court in Livent expressly “left for another day” the question of whether the same discretion arises in the context of a “one person” corporation, citing Stone & Rolls Ltd. (in liquidation) v. Moore Stephens, [2009] UKHL 39, [2009] 1 A.C. 1391 (“Stone & Rolls”). That is precisely the context of this case.

[53] In my view, there is no principled basis on which to exclude the discretion recognized in Livent from this case, simply because Golden Oaks was a one‑person corporation. A similar view has been taken in the U.K., where the Stone & Rolls decision has been interpreted narrowly. In more recent cases, such as Singularis Holdings Ltd. (In Official Liquidation) (A Company Incorporated in the Caymen Islands) v. Daiwa Capital Markets Europe Ltd., [2019] UKSC 50 (“Singularis”), the U.K. Supreme Court has reiterated that corporate attribution is a context-based analysis. Lady Hale, at para. 33, rejected the proposition that Stone & Rolls stands for the principle that corporate attribution will apply to one-person corporations where there are no innocent directors or shareholders whatever the context and purpose of the attribution. To the extent that the guiding principle is context and purpose, she suggested, at para. 34, that “Stone & Rolls can finally be laid to rest.”

[54] While the Supreme Court has yet to settle the question of the one-person corporation left open for another day in Livent, I see no principled basis on which to apply a different framework for determining whether to apply the corporate attribution doctrine to Golden Oaks in this case.
. Caja Paraguaya de Jubilaciones y Pensiones del Personal de Itaipu Binacional v. Garcia

In Caja Paraguaya de Jubilaciones y Pensiones del Personal de Itaipu Binacional v. Garcia (Ont CA, 2020) the Court of Appeal considered the 'corporate identification doctrine' as it relates to ex turpi causa doctrine [wikipedia: Ex turpi causa non oritur actio is a legal doctrine which states that a plaintiff will be unable to pursue legal remedy if it arises in connection with his own illegal act]:
[13] The corporate identification doctrine is not a free-standing rule; rather it is used for the purposes of applying the ex turpi causa doctrine which is also relied on by the appellants. The overriding concern is whether recovery by the respondent would damage the integrity of the legal system. See: Deloitte & Touche v. Livent Inc. (Receiver of), 2017 SCC 63, [2017] 2 S.C.R. 855, at para. 98.

[14] Further, in Christine DeJong Medicine Professional Corp. v. DBDC Spadina Ltd., 2019 SCC 30, 435 D.L.R. (4th) 379, Brown J. indicated, at para. 2:
What the Court directed in Livent, at para. 104, was that even where those criteria are satisfied, “courts retain the discretion to refrain from applying [corporate attribution] where, in the circumstances of the case, it would not be in the public interest to do so”. [Emphasis in original.]
. DBDC Spadina Ltd. v. Walton

In DBDC Spadina Ltd. v. Walton (Ont CA, 2018) the Court of Appeal considered the 'corporate identification' (or 'alter ego') theory (the Ont CA majority ruling was replaced by the van Rensburg dissent at the SCC [Christine DeJong Medicine Professional Corp. v. DBDC Spadina Ltd. (SCC, 2019)] on the issue of 'knowing assistance', but these quote re corporate identification appear still useful):
[59] A corporation is an abstract legal entity and has no mind or will of its own. Consequently, for civil and criminal purposes, its mind or will is found in the natural person or persons acting as the directing mind or will of the corporation: the “ego” or “alter ego” of the corporation; the centre of the corporate personality. This theory of corporate “identification” or “attribution” was first developed by Viscount Haldane L.C. in Lennard’s Carrying Co. Ltd. v. Asiatic Petroleum Co. Ltd., [1915] A.C. 705, at pp. 713-714, a case involving civil fault and negligence. It was explored at length in the criminal context by Estey J. in Canadian Dredge, at pp. 677-685, and has been found to be “equally applicable in a civil action” in Canada: Standard Investments Ltd. v. Canadian Imperial Bank of Commerce (1985), 1985 CanLII 164 (ON CA), 52 O.R. (2d) 473 (C.A.), at para. 55, leave to appeal refused, [1986] S.C.C.A. No. 29.

[60] The corporate identification doctrine was aptly summarized – in the civil context, but with the acknowledgement that the alter ego doctrine applies “with no divergence of approach” in civil and criminal matters – by Nourse L.J. in El Ajou, at pp. 695-696:
This doctrine, sometimes known as the alter ego doctrine, has been developed, with no divergence of approach, in both criminal and civil jurisdictions, the authorities in each being cited indifferently in the other. A company having no mind or will of its own, the need for it arises because the criminal law often requires mens rea as a constituent of the crime, and the civil law intention or knowledge as an ingredient of the cause of action or defence. In the oft-quoted words of Viscount Haldane LC in Lennards Carrying Co. Ltd v. Asiatic Petroleum Co Ltd:
‘My Lords, a corporation is an abstraction. It has no mind of its own any more than it has a body of its own; its active and directing will must consequently be sought in the person of somebody who for some purposes may be called an agent, but who is really the directing mind and will of the corporation, the very ego and centre of the personality of the corporation.’
The doctrine attributes to the company the mind and will of the natural person or persons who manage and control its actions. At that point, in the words of Millett J:[9] ‘Their minds are its mind; their intention its intention; their knowledge its knowledge.’ It is important to emphasize that management and control is not something to be considered generally or in the round. It is necessary to identify the natural person or persons having management and control in relation to the act or omission in point…

Decided cases show that, in regard to the requisite status and authority, the formal position, as regulated by the company’s articles of association, service contracts and so forth, though highly relevant, may not be decisive. Here Millett J adopted a pragmatic approach. In my view he was right to do so. [Emphasis added; citations omitted.]



. see Canadian Dredge & Dock Co. v. The Queen (SCC, 1985)

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