A recent decision of Justice Wilton-Seigel, CHU de Québec-Université Laval v. Tree of Knowledge International Corp., 2024 ONSC 3451, helps to re-affirm the difference between veil piercing and direct personal liability of corporate directors and officers. Here’s what happened and why it matters.
The Background
During the COVID-19 pandemic, CHU de Québec-Université Laval (“CHU”), a major healthcare institution, entered into a contract with Tree of Knowledge International Corp. (“TOKI”) to purchase three million N95 masks. These masks were crucial during the pandemic. However, instead of receiving the promised N95 masks, CHU got KN95 masks, which didn’t meet the agreed standards.
CHU took legal action against TOKI and its parent company, as well as individuals involved, including TOKI’s director and CEO, Michael Caridi. The allegations were serious: fraudulent misrepresentation, oppression, and unjust enrichment. Essentially, CHU claimed they were misled and financially harmed by the actions of the defendants.
Veil Piercing Explained
In corporate law, companies are usually treated as separate legal entities from their owners or officers. This means that individual shareholders, employees and board members are typically not personally liable for the company’s debts or actions. However, there are exceptions, which is where the concept of “veil piercing” comes into play.
Veil piercing allows courts to hold individuals personally liable if they misuse the corporate structure to commit fraud or other wrongful acts. In this case, the court examined whether Caridi’s actions justified piercing the corporate veil.
Caridi’s Role and Personal Liability
Caridi was a key figure in the transaction. The court found that he made misrepresentations about the mask specifications, leading CHU to rely on false assurances. Despite his defense that he acted in good faith and relied on third parties, the court wasn’t convinced.
The court determined that Caridi’s direct involvement and personal interest in the transaction were significant. His actions went beyond mere negligence: in themselves they constituted the tort of deceit or civil fraud. This finding was crucial because it showed that Caridi couldn’t hide behind the corporate structure to avoid responsibility.
Ultimately, the Court ordered Caridi to pay over $11 million to CHU, less amounts paid by other parties, despite Caridi not being a party to the breach of contract by TOKI for failing to deliver the specified masks.
On the other hand, the Court dismissed CHU’s claims of oppression and unjust enrichment, as there was no evidence of asset stripping or unjustified payments to Caridi. Furthermore, there was no evidence that TOKI was a sham corporation or being used as a shield for a fraudulent or improper purpose, that would justify piercing the corporate veil and holding Caridi responsible for TOKI’s actions.
The case serves as a reminder of the easily overlooked but basic principle that acts by an individual in the fulfillment of their corporate office are separately actionable where there is “conduct on the part of those directing minds that is…tortious in itself” (Normart Management Limited v. West Hill Redevelopment Company Limited (1998), 37 OR (3d) 97 (CA)). Or as stated in ADGA Systems International Ltd. v. Valcom Ltd. (1999), 43 OR (3d) 101 (CA), also relied upon by Wilson-Siegel J.: “officers, directors and employees of corporations are responsible for their tortious conduct even though that conduct was directed in a bona fide manner to the best interests of the company” [emphasis added].
Put simply, it is unnecessary to “pierce” anything when an individual has acted tortiously.