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CORPORATIONS - General principles - Distinct legal entity - Exceptions (piercing the corporate veil)

Tuesday, February 04, 2020 @ 6:32 AM  


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Appeal by the representative plaintiffs from a decision granting their application for summary judgment against the Jastek Valencia and Jastek MB for breach of contract only and from the award of costs made in favour of the GDP parties. Cross-appeal by Jastek MB and Jastek Valencia from findings that Jastek Valencia breached the terms of the condominium purchase agreements by failing to use its best efforts to obtain a building permit and that Jastek MB was an agent for Jastek Valencia and was therefore responsible for Jastek Valencia’s breach of contract. Cross-appeal by GDP from the dismissal of its counterclaim for improper registration by the purchasers of a lis pendens on the property. The appellants entered into agreements with Jastek Valencia to purchase condominium units. 585 SK Ltd. was the sole shareholder of Jastek MB and of Jastek Valencia. The project was cancelled. GDP, operated by the brother of R, who ran the Jastek companies, then built another project on the property. The appellants sued the Jastek parties and the GDP parties in a class action alleging breach of contract agency, inducement of breach of contract and conspiracy claims. The purchasers claimed the brothers realized there was a rising market for the sale of condominium properties between the time the original project began selling units and the time when the application for a building permit was withdrawn which motivated the brothers to agree to breach the appellants’ agreements to enhance the profit. The appellants appealed the Chambers judge’s failure to lift the corporate veil regarding 585 SK and the dismissal of their claims of conspiracy by unlawful means and inducing breach of contract and the order of costs made against them. GDP cross-appealed the dismissal of its counterclaim in its entirety.

HELD: The appeal of the purchasers allowed in part. The corporate veil of 585 SK Ltd. was lifted to make it liable for the breach of the agreement by Jastek Valencia. Cross-appeals dismissed. There was no palpable and overriding error in the Chambers judge’s finding that best efforts were not used by Jastek to obtain a building permit. The Chambers judge committed no errors of law in his handling of the evidence and did not reverse the onus of proof in determining the facts grounding the issue of whether best efforts were made. He did not disregard significant evidence or consider irrelevant evidence. The Chambers judge erred in dealing with the issue of lifting the corporate veil for 585 SK Ltd. He made several factual errors that impacted his analysis of whether to lift the corporate veil. Multiple corporate personalities were used to develop the Valencia Project which all led back to 585 SK Ltd. This company was the parent of all the Jastek corporations involved in the project. Any profits would have eventually flowed back in some way to 585 SK Ltd. as the shareholder of Jastek Valencia or to Jastek MB. Jastek Valencia was an agent of 585 SK Ltd. and the corporate veil of 585 SK Ltd. must be lifted. Therefore, it was responsible for the breach of the agreement in the same way as Jastek Valencia. The chambers judge did not err in dismissing the purchasers’ claim for conspiracy by unlawful means or inducement to breach. They were not able to prove the essential element of an agreement and accordingly were unable to establish a conspiracy existed. The Chambers judge was entitled to accept the evidence that the decision to withdraw the permit application was Jastek’s alone. This was a crucial finding of fact in the analysis of whether there was an agreement between the Jastek parties and the GDP parties. The judge’s inferences from the evidence before him were reasonable. None of the circumstantial evidence compelled a finding of an agreement to engage in unlawful conduct to breach the agreement. The judge had the power to dismiss GPD’s entire counterclaim on the basis that GDP failed to provide evidence of damages, an essential element of its counterclaim. The costs award was not so obviously unjust as to invite intervention by this Court. A Sanderson order was not appropriate.

Holmes v. Jastek Master Builder 2004 Inc., [2019] S.J. No. 497, Saskatchewan Court of Appeal, R.K. Ottenbreit, J.A. Ryan-Froslie and L.M. Schwann JJ.A., December 9, 2019. Digest No. TLD-February32020003