Corporate Veil-Piercing and Structures of Canadian Business Law

Abstract

If Canadian corporate statutes include rules providing that a corporation and its shareholders are separate legal persons, what lets courts disregard these rules by piercing the corporate veil? The Court of Appeal for Ontario’s Chevron decision brought this question into the judicial limelight: in closing the test for piercing the veil, the majority relied partly on the “clear policy choice” they believed Parliament made by legislating rules of corporate personhood. An open-ended test, they felt, would not respect this choice. The Supreme Court of Canada’s subsequent decision in Nevsun, though not formally involving veil-piercing, nonetheless sits uneasily with Chevron’s closed-ended test. This article uses Nevsun as a jumping-off point to re-examine the rules of corporate personhood and their limits.

In setting the backdrop for this discussion, this article also examines some broader ideas about the choices available to the drafters of legal directives that perhaps underlie Chevron, and explains why these ideas do not seem to fit Canadian business law. Rather than making a series of one-off choices between clear rules and open-ended standards, in this area of law legislatures often layer catch-all standards on top of more specific rules. Within these hybrid structures, standards develop with reference to their corresponding rules, lending them greater predictability, while at the same time making these rules less prone to obsolescence. This article reviews examples of this structure at work, and argues we should view the rules of corporate personhood and the standard for piercing the corporate veil as another example of this structure. Doing so allows us to resolve the question of veil-piercing’s legitimacy, and reveals that Chevron should be revisited.

Keywords: corporate personality, corporate veil, rules and standards, anti-avoidance, transnational corporations

JEL Classification: K20, K22, L51