The Case was Won on WeChat
An interesting case came out of the Superior Court of Justice recently. The case was about a Plaintiff moving to pierce the corporate of two corporations so the Plaintiff, a real estate agent, can be able to retrieve its real estate commissions.
The Court made several editorials about the Plaintiffs’ litigation strategy. Especially in the cost endorsement.
The lis was approximately for $140,000.00. The Plaintiff lost and the Defendant was awarded $143,931.31 in costs. To add salt to the wound, the Plaintiff appealed and lost another $20,000.00. Of course, this would be all in addition to the Plaintiff’s expenditure in legal fees.
Apparently, there was an offer to settle by the Defendant to the Plaintiff for $70,000.00.
Obviously, the Plaintiff mismeasured its chances of being successful.
The case is about a group of investors purchasing a commercial property. The realtor was acting for this group. The first group of the investors (“Group A”) executed a purchase and sale agreement to buy the property. The agreement contained a due diligence clause. Some of the investors were not too keen on purchasing the property for various reasons. Two of the investors were more interested.
Much of the communications that were intra the investors were done through WeChat messenger. The realtor was in the group chat and privy to investors expressing their concerns and interest about the property.
The sale did not go through.
The same property was then sold to another group (“Group B”). What occurred next was that two of the investors of Group A joined Group B. The property closed and the realtor was not paid a commission.
There were some suspicions transactions as one of the Group B’s shareholders had transferred her shares to a Group A investor for a period of 10 months and then them transferred back. The Plaintiff was hanging his hat on this back-and-forth to prove that the Group B was a façade. The Plaintiff viewed that this in addition to the fact two of the Group A investors were a part of Group B all was enough to set aside the corporate form of which the two entities were built under for the purposes of imposing liability.
The Court started with two of the leading cases on the piercing the corporate veil, Shoppers Drug Mart Inc. v 6470360 Canada Inc. and 642947 Ontario Ltd. v Fleischer (2001) but mostly applied the Yaiguaje v Chevron Corp. where the Court held if the corporate form is being abused to the point that the corporation is not a truly separate corporation and is being used to facilitate fraudulent or improper conduct, the law will set aside the corporate form.
In that case, the Court listed instances when it may look at through the corporate form to identify who is behind the corporation: (1) when the Court is construing a statute, contract or other document; (2) when the Court is satisfied that a company is a ‘mere façade’ concealing the true facts; and (3) when it can be established that the company is an authorized agent of its controllers or its members, corporate or human.
The Court in applying the above framework found that the companies had overlapping shareholders and directors/officer but were not identical. Further, the two members from Group A that jumped over to Group B did not control either company, nor do they represent the directing mind and will of either company.
The Court focused intentionality and found that the intention behind the termination of the first agreement was the fact some of the investors were not content with the business proposition that property offered. The reason for the termination was not to save on the commission. The realtor was privy to the Group A concerns as they were expressed in the WeChat group. The Court found that Group A corporation entity was within their rights to terminate the agreement.
The Court dismissed the Plaintiff’s action.
The Plaintiff’s approach on this litigation must be based on the view that he had a strong case on the facts. Though most of the evidence the Court ruled on appeared to be evidence the Plaintiff had pre-litigation, especially the WeChat messages.
The Court at one point editorialized that “Once the evidence of corporate ownership was made clear, the cloud of obscurity was lifted from the case. To be sure, I found myself wondering midway through the mini-trial why it was proceeding at all.”
Obviously, the Plaintiff’s factual position was not accepted by the Court. But it begs the question why the Plaintiff proceeded to spend a significant sum of legal fees and risk costs for a modest amount of $140,000.00. It may be the Plaintiff was banking on other heads of damages such aggravated and punitive.