Date: 20050301
Docket: T-1843-04
Citation: 2005 FC 311
BETWEEN:
TRANS-PACIFIC SHIPPING CO.
Plaintiff
and
ATLANTIC & ORIENT TRUST COMPANY LIMITED,
ATLANTIC & ORIENT SHIPPING (PTE) LTD.,
ATLANTIC & ORIENT SHIPPING CORPORATION,
BRITISH VIRGIN ISLANDS, ATLANTIC & ORIENT SHIPPING
CORPORATION, NEVIS, WEST INDIES and MURRAY WILGUS
Defendants
[1] These proceedings arise out of an ongoing process of registration, in the Federal Court, of a British award relating to a charterparty and the carriage of a cargo of cement. At issue was charter hire and the expense of putting the vessel back into her original condition. The award, by a London arbitration tribunal, was registered in an earlier application, T-1405-04, Trans-Pacific Shipping Co. v. Atlantic & Orient Shipping Corporation. This registration led to the present action to enforce the award against both the debtor and also several apparently closely connected corporate enterprises and their principle.
[2] These reasons arise out of a motion to strike out the statement of claim in this action for want of jurisdiction, or alternatively to stay this action, the request for the latter relief having subsequently been adjourned. Redundancy, as between this action and the earlier application, was not argued.
[3] It is essential to consider whether the alleged absence of jurisdiction to enforce the award results in a proceeding plainly and obviously doomed. Here one must consider the clearly expansive view of the Federal Court's maritime jurisdiction, for example the view taken by the Supreme Court of Canada in Antares Shipping v. The Capricorn [1980] 1 S.C.R. 553, the present enforcement provisions in Rule 326, and broad navigation and shipping jurisdiction of the Federal Court, for example as referred to in Textainer Equipment Management B.V. v. Baltic Shipping Co. (1994) 84 F.T.R. 108 (F.C.T.D.). I have also kept in mind the present more flexible approach taken in dealing with the separate corporate entities principle and the so-called piercing of the corporate veil, an equitable concept, in the context of the Federal Court, which has, by section 3 of the Federal Court Act, an equitable jurisdiction.
[4] The Plaintiff has set out enough facts to arguably both engage the jurisdiction of the Federal Court and to allow the Court to disregard the separate entities principle of corporate identities in enforcing the arbitration award. The action may continue, with the Defendant to have additional time within which to file a defence. I will now consider this in more detail, beginning with some relevant background.
BACKGROUND
[5] In February 2002 the Plaintiff shipowner, Trans-Pacific Shipping Co. ("Trans-Pacific") chartered its ship, the Grand Orchid, to Atlantic & Orient Shipping Corporation located in the British Virgin Islands ("Atlantic BVI"). By the charterparty cement was an excluded cargo, however Trans-Pacific agreed that a cargo of cement might be carried from Thailand to the American west coast. This cargo required modification to the ship and particular attention to cleaning holds after the cargo was discharged. Atlantic BVI failed to make good as to repair of modifications and cleaning of the holds, which Trans-Pacific accomplished at its own expense. In the result Trans-Pacific, as owner, obtained an arbitration award on 18 March 2004, against Atlantic BVI, in the amount of $96,351.67 (US) for charter hire and cleaning of holds and the amount of $10,050 (US) for repairing modifications to the vessel, both with interest at 4%, together with costs of £ 4,920, with interest at 6%.
[6] The award being unsatisfied, Trans-Pacific registered it in the Federal Court on 30 July 2004. A writ of seizure and sale in the amount of $151,152.99, principal and interest, issued on 30 July 2004, the writ being executed against the bunkers aboard the Nordsund, then at Vancouver: Trans-Pacific understood that the bunkers aboard that ship belonged to Atlantic BVI.
[7] Vancouver solicitors, instructed and advised by Atlantic & Orient Shipping (PTE) Ltd., located in Singapore ("Atlantic Singapore"), agent, perhaps parent and alleged guiding force behind both Atlantic BVI and of Atlantic & Orient Shipping Corporation located in Nevis ("Atlantic Nevis") subsequently challenged the arrest. That Atlantic Singapore was involved, and here I note that an affidavit sworn on a motion in file T-1405-04 is on the advice of the assistant general manager of Atlantic Singapore, who advises that Atlantic Singapore is agent for Atlantic BVI and Atlantic Nevis, is not surprising, for both Atlantic BVI and Atlantic Nevis are apparently registered in those jurisdictions as International Business Corporations, as a result of which neither may carry on business in either the British Virgin Islands or Nevis, West Indies. To complicate matters further we also have Atlantic & Orient Trust Company Limited, located in Hong Kong and A & O Shipping Canada Ltd., incorporated in the Yukon Territory and extra-provincially registered in British Columbia.
[8] In the initial application Atlantic Nevis had itself added to the style of cause and while it was not successful in setting aside the execution against and seizure of the bunkers on the Nordsund, it did achieve release of the bunkers through the posting of bail in the amount of $200,000, to be held in trust by the solicitors for Atlantic Nevis and further Atlantic Nevis provided security for costs in the amount of $6,000, to be held in trust by the solicitors for Trans-Pacific. The initial application, T-1405-04, in which the arbitration award was registered and security to release the bunkers was provided, having served its initial purpose, Trans-Pacific began the more recent proceeding, an action, T-1843-04, on 13 October 2004, naming as defendants Atlantic Hong Kong, Atlantic Singapore, Atlantic BVI, Atlantic Nevis and Murray Wilgus, the latter said to be managing director of Atlantic Singapore and to be in control of all of the corporate Defendants. I will summarize the statement of claim, for what is alleged, together with affidavit material, is central as to whether or not the action may be struck out on the present motion. The statement of claim alleges a number facts, including that:
1. All of the Defendants, except for Atlantic Hong Kong, have an office at the same location in Singapore, with Atlantic BVI and Atlantic Nevis being prohibited from carrying on business in their jurisdictions of incorporation;
2. Murray Wilgus was at all material times managing director of Atlantic Singapore and effectively controlled all of the corporate Defendants;
3. The charterparty of the Grand Orchid, which led to the arbitration award, was between Trans-Pacific and Atlantic BVI, the latter having refused, apparently without reason, to pay the arbitration award;
4. Trans-Pacific believed that Atlantic BVI owned the bunkers aboard the Nordsund when they were arrested at Vancouver, with Atlantic Nevis posting security;
5. That unknown to Trans-Pacific Atlantic BVI and Atlantic Nevis were agents of Atlantic Singapore for the purpose of conducting the business of Atlantic Singapore and that the assets and debts of Atlantic BVI and Atlantic Nevis were and are held for Atlantic Singapore and as such are the assets and debts of Atlantic Singapore;
6. Alternatively Trans-Pacific alleges that Atlantic BVI and Atlantic Nevis were controlled by Atlantic Hong Kong, Atlantic Singapore, or Murray Wilgus for the purpose of conducting the business of Atlantic Singapore, both Atlantic BVI and Atlantic Nevis being "mere conduits or cloaks" of the Defendants Atlantic Hong Kong, Atlantic Singapore and Murray Wilgus, with Atlantic BVI and Atlantic Nevis having no independent function;
7. Trans-Pacific sums this up by alleging that Atlantic Hong Kong, Atlantic Singapore and Murray Wilgus conduct all of the business of Atlantic BVI and Atlantic Nevis, the latter two firms having no independent business existence;
8. That Atlantic BVI and Atlantic Nevis are governed and effectively and constantly controlled by Atlantic Hong Kong, Atlantic Singapore and Murray Wilgus, those three entities being the "head and brain of the business of the Defendant A & O BVI and Defendant A & O Nevis"; and
9. That Trans-Pacific has suffered damages, the non-payment of the arbitration award, by reason of the Defendants' attempting to avoid payment of just debts.
[9] I have set out these various allegations not to reach any conclusion on the merits, but rather to provide a background against which to determine whether the action is plainly and obviously one which must fail. In considering the facts I am to assume them to be true, for the purposes of the motion, but with the proviso where, as here, no reasonable cause of action is alleged by reason of jurisdiction, as a basis for striking out the statement of claim, I may consider affidavit evidence: see for example, the standard cases on point referred to in I.C.S. Petroleum (Montreal) Ltd. v. The Polina 3, an unreported 16 February 2004 decision in action T-1838-04, 2005 FC 251.
[10] As to relief, the Plaintiff seeks two declarations. The first declaration sought is that the debts of Atlantic BVI are the debts of Atlantic Singapore, Atlantic Hong Kong or Murray Wilgus, or all of them. The second declaration sought is that the assets of Atlantic Nevis are, at law, the assets of Atlantic Hong Kong, Atlantic Singapore, or Murray Wilgus, or all of them. The substantive part of the relief sought then concludes by seeking an order that the arbitration award be paid from the security posted in the earlier proceeding, T-1405-04. I now turn to a consideration of all of this.
CONSIDERATION
On Striking Out a Pleading
[11] To strike out a pleading is a serious matter, for it deprives a party of the benefit of a full hearing inherent in having a day in court. For that reason the case law is such that striking out is not easy to achieve. In Martel v. Samson Band, an unreported 17 March 1999 decision of Mr. Justice Hugessen, in file T-2391-88, [1999] F.C.J. 374, Mr. Justice Hugessen set out what he called an elementary principle, but is one too often not given full weight:
... elementary is the principle that on a motion to strike such as this one the Court must have regard to the whole of the impugned pleading, must read the pleading in context and with what I may call a generous eye and should only strike it if it is plain and obvious that the pleading must fall at trial.
Mr. Justice Hugessen was referring to a third party claim, but the same principle should be applied in any situation where a party seeks to strike out a pleading.
[12] In the present instance the underlying objective of the Plaintiff, in order to succeed, will be to set aside the separate entities principle of corporate identities. This principle is something which does come up from time to time, but may arise, as here, on novel facts. However, as Mr. Justice Holland, of the Ontario High Court of Justice pointed out, in Air India Flight 182 Disaster Claimants v. Air India (1987) 44 D.L.R. (4th) 317 at 322, in the context of striking out an action for absence of a reasonable cause of action, a novel cause of action should not work against a plaintiff:
The novelty of the cause of action will not militate against the plaintiffs: Shawn v. Robertson, [1964] 2 O.R. 69, 46 D.L.R. (2d) 363 (H.C.); Whittaker v. Sanders (1975), 9 O.R. (2d) 238, 60 D.L.R. (3d) 80, 21 R.F.L. 389 (H.C.); Johnson v. Adamson (1981), 34 O.R. (2d) 236 at p. 241, 128 D.L.R. (3d) 470 at pp. 475-6, 18 C.C.L.T. 282 (C.A.)
Finally, as Associate Chief Justice Jerome observed in Franco Pica v. The Queen [1985] 1 C.T.C. 160 at 161, if there is any doubt the matter should proceed to trial:
Only in cases where it is plain and obvious that no reasonable cause of action is disclosed will an application to strike the statement of claim succeed. Any doubt must be resolved in favour of permitting the plaintiffs to proceed to trial.
[13] The crux of the application for striking out, in this instance, is want of jurisdiction. Madam Justice Reed had this to say as to striking out for want of jurisdiction in Hodgson v. Ermineskin Indian Band (2000) 180 F.T.R. 285 (F.C.T.D.) at page 289:
Some questions of jurisdiction cannot be easily decided until after all the evidence in a case has been adduced. On other occasions, such questions may easily be decided on a summary motion to strike. The "plain and obvious" test applies to the striking out of pleadings for lack of jurisdiction in the same manner as it applies to the striking out of any pleading on the ground that it evinces no reasonable cause of action. The lack of jurisdiction must be "plain and obvious" to justify a striking out of pleadings at this preliminary stage.
Here Madam Justice Reed questions the possibility, in some instances, of striking out for want of jurisdiction at an interlocutory stage, but does concede that in other instances want of jurisdiction and striking out can be considered and accomplished on a motion.
Dividing Registration of Award from Relief
[14] The position of the Defendant, Atlantic Singapore, is that the declarations sought by the Plaintiff do not come within the three-part test set out in ITO-International Terminal Operators Ltd. v. Miida Electronics Inc. [1986] 1 S.C.R. 752 at 766, but rather are matters of property and civil rights, within provincial jurisdiction. Here counsel for the Defendant refers to Ordina Shipmanagement Co. v. United Med Lines Inc. (2000) 199 F.T.R. 258. In Ordina the Federal Court registered an arbitration award against Unispeed Group Inc., which was not a party to the proceedings in Ordina. However, by a private contract the defendant, United Med Lines, had agreed that the award and any judgment might be enforced against it should Unispeed default. Prothonotary Morneau correctly observed that legal acts that had intervened between, on the one hand, the charter dispute and arbitration award and, on the other hand, the situation resulting in the action on an undertaking or contract as to responsibility for the debt. In effect there was no linkage between the charterparty dispute and registration of the award, both within the jurisdiction of the Federal Court, and the subject of the action, a private contract for payment of a debt, which was clearly beyond the jurisdiction of the Court. That being the situation the statement of claim was struck out as disclosing no reasonable cause of action within the jurisdiction of the Federal Court. Indeed, the contract for payment ought to have been enforced in the courts of a province.
[15] In contrast to Ordina, which involved a free standing non-marine agreement that a settlement could be enforced against a third party, is National Bank Leasing v. Merlac Marine Inc. (1992) 52 F.T.R. 153. In Merlac Marine Mr. Justice Strayer, as he then was, considered the contemporaineous guarantee of a charterparty, which he found came within the jurisdiction of the Federal Court, because it was integrally connected to a marine matter, a charterparty.
[16] In the present instance, notwithstanding the separate proceeding required by Federal Court Rules and procedure, in order to complete enforcement of the arbitration award against the security provided in order to release the bunkers which were aboard the Nordsund, there is not the separation of breach of charterparty from a separate contract for payment of the arbitration award as there was in Ordina. Here the registration of the award and its enforcement are both part of one process, one flowing from the other, being analogous to Merlac Marine (supra). Indeed, the award and enforcement might have been accomplished in one proceeding, the more expensive and cumbersome procedure of converting the judicial review application to an action and then amending to add extra defendants and request additional relief, as allowed by Mr. Justice Hugessen in Shubenacadie Indian Band v. Canada (2001) 202 F.T.R. 30 at 32-33 and see also Shubenacadie v. Canada (2002) 299 N.R. 241 (F.C.A.) at page 243, paragraph 4. Instead the Plaintiff has elected to follow the registration application with an enforcement action.
[17] The Federal Court has long, even before present Rule 326, providing for filing of foreign awards, recognized its jurisdiction to enforce foreign arbitration awards. Here I have in mind the decision of Mr. Justice Dubé, in Eurobulk Ltd. v. Wood Preservation Industries [1980] 2 F.C. 245 (F.C.T.D.) in which the Federal Court was asked to enforce an award granted by a foreign tribunal. Clearly the Court had the jurisdiction to hear and settle disputes arising out of the use or hire of a ship, including by charter. The question to be answered was whether the Court could give executory force to an award granted by a foreign body, where the subject matter of the award fell within navigation and shipping, given that under the British North American Act of 1867 each province had exclusive control over the recognition and enforcement of foreign money judgments. Mr. Justice Dubé pointed out that if the issue had been a foreign judgment issued by a court of law, the Federal Court would have no jurisdiction as to enforcement, however at issue was an arbitration award arising out of a charterparty dispute. Given the real issue the test in Quebec North Shore Paper Co. v. Canadian Pacific Ltd. [1977] 2 S.C.R. 1054, the predecessor to ITO-International Terminal Operators Ltd. v. Miida Electronics Inc. [1986] 1 S.C.R. 752 which was decided after the Eurobulk decision, had been met. Mr. Justice Dubé pointed out that the claim was one arising out of a charterparty and a binding arbitration award and fell within section 22(2)(i) of the Federal Court Act, the section providing jurisdiction in a charterparty dispute. The defendant's motion to file a conditional appearance was denied.
[18] The next relevant case, which still predates present Federal Court Rule 326, is Antares Shipping Corp. v. The Capricorn [1980] 1 S.C.R. 553. There at issue was the enforcement of a sales contract for the Capricorn. The Federal Court of Appeal had declined jurisdiction as it was unable to find any existing federal law by which to fulfil the jurisdictional test as set out in Quebec North Shore (supra) and in McNamara Construction (Western) Ltd. v. The Queen [1977] 2 S.C.R. 654. However the Supreme Court of Canada took an expansive view of section 22(2)(a) of the Federal Court Act, which referred to claims as to title, possession or ownership of a ship, noting that the section included a claim as to entitlement to possession, and then extended that jurisdiction to include breach of contract for the sale of a ship and an action for specific performance of that contract of sale. To reach this conclusion the Supreme Court of Canada also referred to section 44 of the Federal Court Act, the section which, among other things, allowed the Court to make orders for specific performance. That equitable relief finds a parallel in section 3 of the Federal Court Act, which constitutes the Federal Court not only a court of law and admiralty, but also a court of equity. The expansive approach taken by the Supreme Court in The Capricorn was a clear break from the restrictive approach taken by the Federal Court of Appeal in The Capricorn v. Antares Shipping Corp. [1978] 2 F.C. 834, the Court of Appeal being unwilling to extend section 22(2)(a), involving title, possession or ownership of a ship, to breach of a contract for the sale of the ship, it not being, in the view of the Court of Appeal, a maritime matter, but rather a pure contractual issue. As a result of the Supreme Court of Canada decision, upholding the Trial decision in The Capricorn, the latter is relevant. There, Antares Shipping Corporation v. The Capricorn [1973] F.C. 955 Mr. Justice of Appeal Pratt, sitting as a judge of the Trial Division, pointed out that the plaintiffs sought a remedy within the jurisdiction of the Court, which as to shipping extended to all parts of maritime law related to ships and persons employed about them and that the remedy sought, within this scope, extended to matters under section 22(1) of the Federal Court Act, the broad admiralty jurisdiction, which was co-extensive with the legislative power of Parliament over navigation and shipping. This is in part reflected in a passage from page 958:
In my view, a claim which relates to "navigation and shipping", a subject-matter which is within the exclusive legislative jurisdiction of Parliament under section 91(10) of the British North America Act, 1867, is a claim made under a law of Canada relating to navigation and shipping. In other words, the jurisdiction of this Court in maritime matters under section 22(1) is co-extensive with the legislative power of Parliament over "navigation and shipping"; it is not limited to the matters coming within that subject on which Parliament has actually legislated.
Interesting here is the view that the Federal Court jurisdiction in maritime matters, being co-extensive with the legislative power of Parliament, can be broader than that apparently set out in section 22(1). This is reflected in Textainer to which I now return.
[19] In Textainer Equipment Management B.V. v. Baltic Shipping Co. (supra) Mr. Justice Muldoon dealt with, in part, an agreement between the parties according a contractual maritime lien over an entire fleet, as security for the supply of containers. There the Court looked upon the admiralty and maritime law role as being exercised in an equitable manner, to give a broad jurisdiction to deal with a vessel contractually pledged, as security for necessaries in the form of a pool of containers, to the plaintiff.
[20] The expansive view of the Federal Court's shipping and navigation jurisdiction may well, in itself, be sufficient to justify the Plaintiff's action seeking declaratory relief leading to enforcement of the registered arbitration award. However, there is additional applicable law which favours the Plaintiff.
[21] Against this expansive view of jurisdiction in navigation and shipping I will examine the Defendants' argument that once the initial stage in the registration application has come to an end, with the registration of the award, the claim for declaratory relief, by which to enforce the award, is purely a provincial matter of property and civil rights, to be dealt with by the courts of the relevant province. If this were so, that the concept that enforcement of a Federal Court decision might depend upon provincial jurisdiction and the provincial courts, such would seriously devalue Federal Court decisions. Happily sections 55(1) and 56(1), (3) and (4) of the Federal Court Act and the implied jurisdiction of the Federal Court to make its own procedural system work, do not allow such a restrictive outcome.
[22] A useful case, explaining the extension of Federal Court jurisdiction to that necessary to enforce Federal Court judgments, is Standal Estate v. Swecan International (1990) 40 F.T.R. 272, a decision of Mr. Justice Pinard, commented upon in Fegol v. Minister of National Revenue (1995) 95 F.T.R. 140. In Standal the plaintiff obtained a Federal Court writ of execution against property held by a third party who was not directly involved in the litigation: at issue was whether or not the Federal Court could determine if the property seized was within the estate of the judgment debtor and thus subject to execution. In summing up his reasoning, which was by way of ITO-International Terminal Operators Ltd. (supra) and Wewayakum Indian Band v. Canada and Wewayakai Indian Band [1981] 1 F.T.R. 322 Mr. Justice Pinard went on to find that:
In this case, I find that the Court has jurisdiction to decide on the merits of the objection to the seizure and execution because of the fact that this objection was made in the context of the enforcement of a judgment rendered in an action for patent infringement in which the jurisdiction of the Federal Court of Canada, and this is not disputed, entirely meets the test set out above which was imposed by the Supreme Court of Canada.
In this context, subsections 55(1) and 56(1), (3) and (4) of the Federal Court Act specifically confirm the extension of the Court's jurisdiction to all proceedings relating to the full enforcement of its judgments [page 276].
Mr. Justice Pinard, having concluded that there was jurisdiction, by specific reference to the Federal Court Act sections set out immediately above in the quotation, then pointed out that where the Federal Court of Canada initially has full jurisdiction, that jurisdiction does not disappear when judgment is given and the issue becomes enforcement of that judgment:
I therefore conclude that in a case where the Federal Court of Canada is recognized as having full jurisdiction, such jurisdiction is not automatically extinguished when judgment is given in the main action, but rather it subsists in any proceedings relating to the enforcement of that judgment. In my view, to deny the Court this right to determine, in the context of the forced enforcement of one of its judgments, whether the property seized is part of the estate of the judgment debtor, even if such determination requires consideration of the provisions of the Civil Code of the province of Quebec, would constitute a serious hindrance to the exercise of the Court's powers of enforcement, and would be manifestly contrary to the will of Parliament ... [pages 277-278].
In Standal at issue was a writ of enforcement. However, by analogy, this extends to any procedure leading to the enforcement of a Federal Court decision. The important element here, as put by Mr. Justice Pinard in Standal, is that the jurisdiction of the Federal Court "... is not automatically extinguished when judgment is given in the main action, but rather it subsists in any proceedings related to the enforcement of that judgment.": this reference to "any proceedings" is a very broad statement.
[23] Perhaps a more direct route to the same conclusion is that the Federal Court has the implied jurisdiction to make its own procedural system work and here I would refer to Margem Chartering Co. v. Bocsa [1997] 2 F.C. 1001 at 1014 where I observed, in the context of an implied jurisdiction to make a Court's procedure work:
Neither the affidavit to lead warrant nor the warrant fall within the Rule 2 definition of a pleading and thus Rule 419 is of no assistance in striking out or setting aside the warrant as an abuse. However, the Court has an inherent jurisdiction, not in the sense of substantive law, or of an antithesis to the Court's statutory jurisdiction, but rather an inherent procedural jurisdiction to control its own process from abuse, notwithstanding its rules and limiting statutory jurisdiction. The Federal Court of Appeal, in New Brunswick Electric Power Commission v. Maritime Electric Company Limited, [1985] 2 F.C. 13, at page 26 et seq., refers to this sort of a jurisdiction as an implied jurisdiction I think with the idea that, where Parliament has conferred a power on the Court, there is the implication that there must also exist the necessary power to control and make the conferred jurisdiction work. Mr. Justice Addy touches on this concept in Nisshin Kisen Kaisha Ltd. v. Canadian National Railway Co., [1981] 1 F.C. 293 (T.D.), at page 301 where he writes "every Court of superior jurisdiction . . . must possess the innate right of controlling its own process and, subject to the requirements of justice, to control the actions before it of those wishing to avail themselves of its jurisdiction". Mr. Justice Mahoney in Bandag Inc. v. Vulcan Equipment Co. Ltd., [1977] 2 F.C. 397 (T.D.) puts it more bluntly, at page 402: "this Court has an inherent jurisdiction over its own process to enable it to carry out the basic raison d'être it shares with every court of civil jurisdiction".
In the Bocsa the issue was the setting aside of an arrest warrant, however the same principle, that of an implied jurisdiction to control and make a conferred jurisdiction work, is of broad application. This is so, in the present instance, where to enforce an arbitration award registered in an application one must interpret the jurisdiction of the Court broadly, an ongoing jurisdiction that requires, in this instance by reason of the approach taken by the Plaintiff, a subsequent action and declaratory relief in order to obtain a remedy. However this is only half the answer in the present instance: I now turn to a consideration of separate corporate entities and the so-called setting aside of the corporate veil.
Separate Corporate Entities
[24] As I have already indicated Trans-Pacific sets out in its statement of claim that the assets and debts of Atlantic BVI and Atlantic Nevis, agents of Atlantic Singapore, belong to Atlantic Singapore. The allegation is further that Atlantic BVI and Atlantic Nevis, controlled by Atlantic Hong Kong, Atlantic Singapore and their principal, Murray Wilgus, were mere conduits or cloaks for the operations carried out by Atlantic Hong Kong, Atlantic Singapore and Murray Wilgus, those three entities at all times being the head and brain of the operation, Atlantic BVI and Atlantic Nevis having no independent existence. The statement of claim goes on to allege, in paragraph 18, that all of this is an attempt to avoid payment of just debts and this is followed by the plea that:
The Plaintiff has suffered damages and continues to suffer damages as a result of the Defendants wrongfully and unjustly depriving the Plaintiff from recovering on its arbitration award.
The allegations go beyond mere assertions of interlocking corporate control and direction: they are elements necessary to allow the Plaintiff to challenge the principle of separate corporate entities. By way of example, the Federal Court of Appeal pointed out in Painblanc v. Castner (1994) 58 C.P.R. (3d) 512 at 503, that personal liability could not be engaged by the mere fact that a defendant was a shareholder and a managing director, but required more.
[25] In Iris, Le Groupe Visuel 1990 v. Trustus International Trading (2003) F.T.R. 250 188 Mr. Justice Rouleau made the point, at page 192, that for personal liability to fall upon managers and directors, the case there being one of patent infringement, their "... company must have been founded for the very purpose of infringing the plaintiff's rights.". Mr. Justice Rouleau followed this with a reference to the Court of Appeal decision in Mentmore Manufacturing Co. v. National Merchandise Manufacturing Co. (1978) 40 C.P.R. (2d) 164 (F.C.A.) at 174 and here I set will out a little more of the quote than did Mr. Justice Rouleau:
I do not think we should go so far as to hold that the director or officer must know or have reason to know that the acts which he directs or procures constitute infringement. That would be to impose a condition of liability that does not exist for patent infringement generally. I note such knowledge has been held in the United States not to be material where the question is the personal liability of directors or officers. See Deller's Walker on Patents, 2nd ed., 1972, vol. 7, pp. 117-118. But in my opinion there must be circumstances from which it is reasonable to conclude that the purpose of the director or officer was not the direction of the manufacturing and selling activity of the company in the ordinary course of his relationship to it but the deliberate, wilful and knowing pursuit of a course of conduct that was likely to constitute infringement or reflected an indifference to the risk of it. The precise formulation of the appropriate test is obviously a difficult one. Room must be left for a broad appreciation of the circumstances of each case to determine whether as a matter of policy they call for personal liability. Opinions might differ as to the appropriateness of the precise language of the learned trial Judge in formulating the test which he adopted - "deliberately or recklessly embarked on a scheme, using the company as a vehicle to secure profit or custom which rightfully belonged to the plaintiffs" - but I am unable to conclude that in its essential emphasis it was wrong.
Here the Court of Appeal took a little less absolute approach than did Mr. Justice Rouleau. Mr. Justice Rouleau seems to be saying that the specific company must have been founded for the purpose of infringing a specific plaintiff's rights: the Court of Appeal in Mentmore took a broader view, looking for a reckless or deliberate scheme utilizing the company to secure profit or custom which properly belonged to the plaintiff.
[26] In order to deny a remedy the Defendants seek, in the case of Mr. Wilgus, I do not need to find that he in fact deliberately used the companies as vehicles to secure to himself and to his companies profit or money which rightfully belonged to the Plaintiff, but only that the plea is not plainly and obviously one which cannot succeed. Such a clear view of the absence of success is not the case here.
[27] It is perhaps a little more complex to look at the corporate Defendants not as separate entities, but as entities which have forfeited the right to protection of incorporation as separate entities. Here I have concluded that it can be argued, with some chance of success, that the various Atlantic entities are not separate entities, but for many purposes one and the same and thus should not be entitled to the protection of incorporation as separate entities. Madam Justice Wilson considered some of this in Constitution Insurance Co. v. Kosmopoulos (1987) 34 D.L.R. (4th) 208 at 213 where she observed that the separate entities principle would be disregarded when the result is "too flagrantly opposed to justice, ...":
As a general rule a corporation is a legal entity distinct from its shareholders: Salomon v. Salomon & Co., Ltd., [1897] A.C. 22 (H.L.). The law on when a court may disregard this principle by "lifting the corporate veil" and regarding the company as a mere "agent" or "puppet" of its controlling shareholder or parent corporation follows no consistent principle. The best that can be said is that the "separate entities" principle is not enforced when it would yield a result "too flagrantly opposed to justice, convenience or the interests of the Revenue": L.C.B. Gower, Modern Company Law, 4th ed. (1979), at p. 112. I have no doubt that theoretically the veil could be lifted in this case to do justice, as was done in American Indemnity Co. v. Southern Missionary College, supra, cited by the Court of Appeal of Ontario.
[28] Mr. Justice of Appeal Décary, in Villetard's Eggs Ltd. v. Canadian Egg Marketing Agency (1995) 181 N.R. 374 and Mr. Justice of Appeal Létourneau in Northeast Marine Services Ltd. v. Atlantic Pilotage Authority (1995) 179 N.R. 17 have both looked upon the theory of the corporate veil, as set out in Salomon v. Salomon, as doctrine which is less restrictive than was at one time supposed. For example, in Villetard's Eggs Mr. Justice of Appeal Décary said:
Attempts to import into modern administrative law the theory of the corporate veil developed a century ago by the House of Lords [Salomon v. Salomon & Co., [1897] A.C. 22 (H.L.).] in the area of corporate law have been facing increasing opposition.
That opposition has come either through findings that what was done by a licensing authority was not piercing the corporate veil [CIBM-FM Mont-Bleu Ltée v. Canadian Radio-television and Telecommunications Commission and CION-FM Inc. (1990), 123 N.R. 226 (F.C.A.), at p. 233, where this Court held that the CRTC was not lifting the corporate veil in "[i]nquiring into the identity of a corporation's shareholders, or even of the shareholders of corporate shareholders".] or through findings that the corporate veil may be lifted where the corporation is under the control of another person or entity to such an extent that they constitute a common unit, or where one company is in fact the agent or puppet of the other or is being used as a cloak for the actions of the other [See: Syntex Pharmaceuticals International Ltd. v. Medichem Inc., [1990] 2 F.C. 499; 105 N.R. 48 (F.C.A.), note 19, at pp. 516ff] or, more generally, where fraud or improper conduct is alleged. [See: B.G. Preeco I (Pacific Coast) Ltd. v. Bon Street Developments Ltd. (1989), 60 D.L.R. (4th) 30 (B.C.C.A.), at p. 38.]
[29] In Northeast Marine Mr. Justice of Appeal Létourneau, at page 24, commented that the test for lifting the corporate veil was less restrictive than often supposed from Salomon v. Salomon:
In Nedco Ltd. v. Clark et al., [Nedco Ltd. v. Clark et al.(1973), 43 D.L.R. (3d) 714 (Sask. C.A.)] the Saskatchewan Court of Appeal allowed the Court to lift the corporate veil for the purpose of determining whether the picketing of the premises of Nedco Ltd., a wholly-owned subsidiary of Northern Electric Company Ltd., during a legal strike at Northern Electric Company Ltd. ought to be permitted. This case shows that the judicial test is not as restricted as the Trial Judge suggested. A similar view can be found in this statement of Lord Denning M.R. in Littlewoods Mail Order Stores Ltd. v. McGregor (Inspector of Taxes):
"The doctrine laid down in Salomon v. Salomon & Co., Ltd. ([1897] A.C. 22; [1895-99] All E.R. Rep. 33) has to be watched very carefully. It has often been supposed to cast a veil over the personality of a limited company through which the courts cannot see. But that is not true. The courts can and often do draw aside the veil. They can, and often do, pull off the mask. They look to see what really lies behind. The legislature has shown the way with group accounts and the rest. And the courts should follow suit. I think that we should look at the Fork company and see it as it really is-the wholly-owned subsidiary of the taxpayers. It is the creature, the puppet, of the taxpayers in point of fact; and it should be so regarded in point of law." [1969] 3 All E.R. 855 (C.A.), at p. 860].
[Pages 24-25]
Here we have an endorsement by the Federal Court of Appeal of a less restrictive view of the invulnerability of the corporate veil and approval of the view of Lord Denning that the courts can and often do look behind the corporate veil in order to observe reality.
[30] I have considered the statement of claim and particularly the assertions of the interdependence and relationships of the Defendant companies and what they are purported to have accomplished through their relationships and by reason of control emanating from Atlantic Hong Kong, Atlantic Singapore and Murray Wilgus. I accept what is set out in the statement of claim, for the purposes of this motion, as if proven. I do not find as a fact what has occurred, for that is the job of the trial judge, however at this point it is at least arguable that there has been a deliberate attempt to avoid payment of charter hire and other related costs, reflected in the arbitration award. Indeed, it is arguable, given the present circumstances, that the companies have been founded for the purpose of infringing the rights of shipowners who charter their vessels to such companies, a deliberate scheme, using the Defendant companies as a vehicle, to secure what rightfully belonged to the shipowning Plaintiff. To allow the separate entities principle to govern is arguably a result which is too flagrantly opposed to justice to stand.
CONCLUSION
[31] This is an instance in which the Plaintiff should have the opportunity to bring forward its evidence in order to try to convince the trial judge to draw aside the corporate veil and look at the real personalities of the companies involved, their interrelationship and their businesses. This is not to conclude that the trial judge will come to the conclusion that the companies are a common unit used, as the Plaintiff alleges, as a mere conduit or cloak, for improper conduct, for I am only looking at the pleadings as a whole, yet the claim against the Defendants, taking into account both the jurisdictional question and the enforcement of separate corporate entities, is one that is arguable and is not doomed to failure.
[32] The motion to strike out is denied. The Defendants may have 30 days within which to file their defence. Costs to the Plaintiff payable forthwith.
(Sgd.) "John A. Hargrave"
Prothonotary
FEDERAL COURT
NAMES OF COUNSEL AND SOLICITORS OF RECORD
DOCKET: T-1843-04
STYLE OF CAUSE: TRANS-PACIFIC SHIPPING CO. v
ATLANTIC & ORIENT TRUST,and others
PLACE OF HEARING: Vancouver BC
DATE OF HEARING: January 24th, 2005
REASONS FOR ORDER: Hargrave P.
DATED: March 2, 2005
APPEARANCES:
J.William Perrett FOR PLAINTIFF
David K. Jones FOR DEFENDANT
SOLICITORS OF RECORD:
Bromley Chapelski FOR PLAINTIFF
Vancouver BC
Bernard & Partners FOR DEFENDANT
Vancouver BC