November 2, 2023
Alberta corporations are legal persons with rights to hold property, contract with others, and sue or be sued. Corporations are separate and distinct from their shareholders, directors, and employees, and in most cases, are uniquely responsible for liability arising from their actions. In limited instances, corporate liability may be attributed to individuals by “piercing the corporate veil” between them and the corporations they control. Alternatively, concurrent liability may arise based on contemporaneous but separate personal and corporate torts.
In two recent decisions — Parks v McAvoy, 2023 ABCA 211 (“Parks”) and Swanby v Tru-Square Homes Ltd, 2023 ABCA 224 (“Swanby”) — the Court of Appeal of Alberta considered personal liability of corporate principals for the negligent construction of bespoke homes. Parks and Swanby reaffirm the legal separation between corporations and their principals while emphasizing that personal liability may attract in specified circumstances.
Parks v McAvoy
The plaintiff, Mr. Parks, contracted with one or both of Woodparke Homes Ltd. (“Woodparke”) and its principal, Mr. McAvoy, to construct a custom home. There was no written agreement. After significant deficiencies were revealed in the home’s construction, Mr. Parks sought recovery from both Woodparke and Mr. McAvoy for breach of contract, breach of fiduciary duty, and negligence, among other things. Mr. McAvoy applied to dismiss the personal claims against him.
The chambers judge found that no contract existed between Mr. Parks and Mr. McAvoy, personally, with the result that no contractual liability extended to Mr. McAvoy. Similarly, since the allegedly deficient construction was undertaken by Woodparke, and not Mr. McAvoy, no liability extended to Mr. McAvoy in negligence or for breach of fiduciary duty related to the construction. Separate claims that Mr. McAvoy misappropriated funds intended to be used in the home’s construction were allowed to proceed to trial. Mr. Parks appealed.
On the question of contractual liability, the Court of Appeal agreed with the lower court. Absent a written agreement, the question was whether a reasonable, objective person would consider that the oral agreement for construction of Mr. Parks’ home was limited to Mr. Parks and Woodparke, or that Mr. McAvoy had also committed to be contractually bound. Noting a lack of evidence of personal commitment on the part of Mr. McAvoy, and evidence of payments made exclusively to Woodparke, the Court upheld the lower court’s determination that Mr. McAvoy was not an intended party to the contract and therefore not responsible for its breach. Similarly, no fiduciary duty arose in connection with Woodparke’s construction of the home, given the absence of indicia pointing to a fiduciary relationship.
Turning to Mr. McAvoy’s alleged personal liability for negligence in the home’s construction, the Court held that it was necessary to distinguish between attribution of liability based on piercing the corporate veil and concurrent liability for personal torts committed while acting in a corporate capacity. Having failed to make that distinction at first instance, the Court of Appeal held that the chambers judge erred. In light of the available record, the Court held that it was impossible to determine on a summary basis whether Mr. McAvoy had breached any personal duty of care owed, such that the issue of possible concurrent tort liability must proceed to trial. Ancillary claims of fraud and fraudulent or negligent misrepresentation regarding the construction were similarly allowed to proceed. The appeal was therefore allowed in part.
Swanby v Tru-Square Homes Ltd.
The Swanbys and Tru-Square Homes Ltd (“Tru-Square”) were parties to a written agreement for the construction of a custom home. Tru-Square’s principal, Mr. Metcalfe, signed the contract exclusively in his capacity as principal of Tru-Square. After significant construction deficiencies became apparent, the Swanbys claimed against both Tru-Square and Mr. Metcalfe.
Based on the written agreement, the trial judge found that contractual liability was limited to Tru-Square. Claims of fraud, argued as a basis to pierce the corporate veil, were dismissed. Nevertheless, the trial judge held that the circumstances of the case, which included reduced prospects for damages recovery against Tru-Square, demanded that personal liability flow to Mr. Metcalfe. Mr. Metcalfe appealed.
On appeal, the Court of Appeal noted the principle of separate corporate personality, commenting that courts are “generally unwilling to lift or pierce the corporate veil unless required to do so by statute or in the face of extraordinary circumstances”. However, the Court observed that the case before it was not truly a case of piercing the corporate veil, but instead one of possible concurrent liability between the corporation, Tru-Square, and its principal, Mr. Metcalfe. As in Parks, the Court observed that the lower court had inadequately distinguished the concepts.
Evaluating the facts, the Court held that neither concurrent liability nor attributed liability based on piercing the corporate veil were appropriate. As to the former, the Court observed that each instance of alleged negligence occurred while Mr. Metcalfe was engaged in the business of Tru-Square, that Mr. Metcalfe’s actions did not advance a separate personal interest, and that the Swanbys were at all times aware of the separation between Tru-Square and Mr. Metcalfe. In the circumstances, no personal duty of care could be found, and no personal concurrent liability attracted. On the latter, the Court commented that specific and extraordinary conditions were required to pierce the corporate veil, none of which were present. Vague reference to the “circumstances of the case” could not suffice. In the result, the appeal was allowed, and Mr. Metcalfe’s personal liability was set aside.
Conclusion
Parks and Swanby affirm that corporations are presumptively responsible for their actions. Personal liability may be attributed in extraordinary circumstances or found on the basis of a concurrent breach of a separate duty of care in light of adequate evidence. Parks and Swanby are welcome applications in a nuanced and sometimes misunderstood area of the law.