Introduction
When can directors be held personally liable for actions of a corporation? The Ontario Court of Appeal recently considered this issue in Chanderpaul v. Caesars Convention Centre Ltd., 2026 ONCA 332. In Chanderpaul, the Court of Appeal reaffirmed the principle of corporate separateness while correcting an overly narrow articulation of the test for piercing the corporate veil. The Court of Appeal confirmed that the corporate veil can be pierced even where the wrongful conduct at issue is not separate from the corporate purpose.
The decision is a helpful clarification to when corporate decisionmakers may be held personally liable for the acts of the corporation. It is also a helpful reminder of the high evidentiary standard required to successfully pierce the corporate veil.
Background
The Appellant was seriously injured while a passenger in a vehicle driven by an intoxicated driver. Before the accident, both were at Throne Entertainment Venue, a nightclub operated by Caesars Convention Centre Ltd. (“Caesars”). The driver was underage and allegedly used a fake ID to purchase alcohol at the venue. The directors of Caesars (the “Kauras”) were also directors of R.K.S. Investments Ltd. (“R.K.S.”), which owned the property where Caesars operated. The Appellant commenced a claim against Caesars. Caesars’ insurer refused to defend or indemnify Caesars in that claim.
Caesars was noted in default and subsequently dissolved. The Appellant then commenced a second action against the Kauras and R.K.S. personally, seeking to pierce the corporate veil alleging that they had negligently operated Caesars as a nightclub, failed to properly insure it, and improperly took steps to render it judgment-proof.
The motion judge dismissed all claims against the Kauras and R.K.S. on their motion for summary judgment. The Court of Appeal dismissed the appeal.
The Test for Piercing the Corporate Veil in Ontario
The Court of Appeal reviewed the two-part framework from Transamerica Life Insurance Co. of Canada v. Canada Life Assurance Co. (1996), 28 O.R. (3d) 423 (Gen. Div.), aff’d [1997] O.J. No. 3754 (C.A.). Under this test, a court may disregard the separate legal personality of a corporation where:
- (a) Complete domination and control: The corporation must be completely dominated and controlled by the person sought to be made liable. Mere ownership or control is not enough; the test requires complete domination or abuse of the corporate form.
- (b) Fraudulent or improper conduct: The corporation must have been used as a shield for fraudulent or improper conduct, and that conduct must give rise to the liability the plaintiff seeks to enforce.
The Court of Appeal emphasized that corporate separateness is the rule and piercing is the exception.
What the Court of Appeal Clarified
The Court found that the motion judge erred insofar as she appeared to require that the improper conduct occur outside the directing mind’s role or be unrelated to the corporation’s operations in order to pierce the veil. The Court of Appeal rejected that narrow reading, holding that the corporate veil can be pierced where those in control exert total domination and control over the corporation and use it as a shield for fraudulent and improper conduct – regardless of whether the misconduct is related to the purpose or operation of the corporation.
This clarification is significant. It means that a plaintiff need not identify wrongful conduct that is separate from the corporation’s ordinary business. So long as the directing minds are deliberately using the corporation as a vehicle for improper conduct, the second prong of Transamerica may be satisfied.
Why the Claim Still Failed
Despite correcting the motion judge’s restrictive reading, the Court of Appeal upheld the ultimate dismissal of the veil-piercing claims because the Appellant’s evidence fell far short of what is needed to pierce the corporate veil. The evidence consisted of:
- two advertisements promoting alcohol sales at the venue;
- photographs from events showing people dancing and holding alcohol;
- sales records from four servers for the night of the accident; and
- a forensic accountant’s opinion that corporate documentation was inadequate to determine revenues.
The Court held that this evidence did not establish wrongdoing on the night of the accident, let alone the kind of systemic, broader wrongdoing necessary to demonstrate that Caesars was completely dominated and controlled and used as a shield for fraudulent or improper conduct.
Practical Takeaways for Litigators
- The evidentiary bar remains high: Veil-piercing claims require particularized evidence of complete domination and deliberate use of the corporate form as a shield for wrongful conduct. Mere ownership and control, even with some evidence of poor record-keeping, will not suffice.
- Wrongful conduct need not be extraneous to corporate operations: Plaintiffs should not be deterred from pleading veil-piercing simply because the alleged misconduct occurred within the ordinary scope of the corporation’s business. If the directing minds expressly directed the wrongful act, the second prong of Transamerica is potentially engaged.
- Causal connection between misconduct and harm is required: The wrongful conduct must be causally linked to the liability the plaintiff seeks to impose on the individual. Evidence of corporate irregularity (e.g., poor bookkeeping or operating outside the scope of a license) is not sufficient to ground a veil-piercing claim unless it can be tied to the specific abuse of the corporate form alleged in the claim.
The information and comments herein are for the general information of the reader and are not intended as advice or opinion to be relied upon in relation to any particular circumstances. For particular application of the law to specific situations, the reader should seek professional advice.
