Stanley W. Elkind on New Developments Relating to Piercing the Corporate Veil in Canada: Choc v Hudbay Minerals Inc., 2013 ONSC 1414

Stanley W. Elkind on New Developments Relating to Piercing the Corporate Veil in Canada: Choc v Hudbay Minerals Inc., 2013 ONSC 1414

 by Stanley W. Elkind

The idea of a corporation being an independent legal personality, distinct from its shareholders and directors, has been entrenched as a fundamental aspect of corporate law since the late 1800's with a case called Salomon v Salomon & Co Ltd [1897] AC 22. This decision out of the United Kingdom affirmed that, at law, a corporation is a separate person. Throughout the years, however, this idea has been challenged with varying degrees of success. More recently, judges have been increasingly willing to find shareholders and directors personally responsible for actions of the corporation. The Hudbay Minerals case is one such example of this evolving area of the law.

Analysis

Facts of the Case

Hudbay Minerals Inc. ("Hudbay") is a Canadian mining company with subsidiaries across the Americas. One such former subsidiary, Compania Guatemalteca de Niquel ("CGN"), owned and operated a nickel mine in Guatemala. It is alleged that CGN was involved in serious criminal activity between 2007 and 2009. At the material time, workers of CGN claim that security personnel hired by CGN were involved in numerous human rights abuses, including rape, murder, and forced evictions.

Hudbay brought a number of preliminary motions in an attempt to dismiss the action on the basis that this case was not within the jurisdiction of the Ontario courts and that there was no cause of action in Ontario. (Choc v Hudbay Minerals Inc., 2013 ONSC 1414).

Status of the Case

On July 22, 2013, Justice Carole Brown of the Ontario Superior court dismissed the motions. This paves the way for the lawsuit against Hudbay to proceed to trial in Ontario, Canada. Hudbay has said that it will not appeal this ruling. As a result, the case will now enter the discovery phase, with the trial not expected to commence for a number of years.

Piercing the Corporate Veil in the Province of Ontario

A corporation is traditionally viewed as a separate legal personality. Thus, a corporation is typically not to be held responsible for the actions of its subsidiaries. This is the claim that Hudbay was trying to make in this case. However, the corporate veil cannot shield a corporation from fraud, dishonesty, or from failing to perform other legal obligations. To that end, there is jurisprudence which concludes that judges have set aside the notion of separate legal personality with a view to upholding justice. With respect to the relationship between a parent corporation and its subsidiary, a number of principled exceptions have been created that allow the corporate veil to be pierced.

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Stanley W. Elkind is a partner with McLean & Kerr LLP in their Global Services Group. In that role he provides his corporate transactional clients the accessibility, responsiveness, knowledge and understanding of in-house counsel coupled with the deep, full-spectrum McLean & Kerr legal resources and cost-efficiencies.

Mr. Elkind gives his regional, national and international clients passionate, straightforward counsel in general corporate representation, mergers and acquisitions, inbound and outbound international trade and fraud and corruption related matters.

Mr. Elkind also represents clients as borrowers in connection with corporate acquisitions, reorganizations, plant expansions and increased working-capital needs.

He assists foreign clients in establishing business relations or subsidiaries in Canada and advises Canada-based clients on the development of trading opportunities abroad, joint venture agreements, distributor and agency agreements, sales representative agreements and licensing agreements.