Shareholder Liability for Corporate Debt

It is a basic principle of corporate law that shareholders, as such, have limited liability. In the absence of a personal guarantee given by a shareholder, a shareholder in his capacity as such is not liable for any act or liability of a corporation because the corporation is a separate legal entity.

 See Ontario Business Corporations Act, R.S.O. 1990, c. B.16, s. 92(1).

To find that the shareholders of a corporation have departed from that basic principle, a claimant would have to establish the shareholders had agreed to assume personal liability for a corporation’s debts/liabilities.

See Koubi v. Hascalovici, 2016 ONCA 867

The Purposes Behind Limitation Periods

In M. (K.) v. M. (H.), 1992 CanLII 31 (SCC),  [1992] 3 S.C.R. 6, [1992] S.C.J. No. 85, at paras. 21-24, the Supreme Court of Canada set out the underlying rationale for the limitations statutes as follows:

There are three [purposes], and they may be described as the certainty, evidentiary, and diligence rationales. . . .

Statutes of limitations have long been said to be statutes of repose . . . The reasoning is straightforward enough. There comes a time, it is said, when a potential defendant should be secure in his reasonable expectation that he will not be held to account for ancient obligations. . . .

The second rationale is evidentiary and concerns the desire to foreclose claims based on stale evidence. Once the limitation period has lapsed, the potential defendant should no longer be concerned about the preservation of evidence relevant to the claim. . . .

There are, however, rules for the amendment of pleadings, which allow a court to relieve against the harshness of an expired limitation period in certain circumstances (for instance, in Ontario Rules 26.01 and 5.04(2) of the Rules of Civil Procedure). It would be wrong, however, to view such rules as allowing a party to use the existence of an outstanding claim, and nothing more, to defeat the protection of relevant limitation periods.

See Frohlick v. Pinkerton Canada Limited, 2008 ONCA 3 (CanLII) at para 20

In an upcoming blog I will discuss how this judicial policy informs the rules in respect of the amendment of pleadings.

Participant Experts v. Litigation Experts

At common law a distinction developed between expert witnesses engaged to provide opinion evidence in relation to a proceeding (litigation expert) and an expert not engaged by a party to form his/her opinions, and who does not form his/her opinions for the purpose of the litigation (participant expert). An example of the latter is a treating physician who gives opinion evidence directly related to his/her treatment of a patient, such as a working diagnosis and prognosis.   

The distinction between these types of expert witnesses has been codified in amendments to the Rules of Civil Procedure as of 2010.

The Rules of Civil Procedure provides a comprehensive framework addressing a specific class of expert witnesses (see Rules 4.1.01, 53.03 and Form 53):  those “engaged by or on behalf of a party to provide [opinion] evidence in relation to a proceeding.” Witnesses, albeit ones with expertise, testifying to opinions formed during their involvement in a matter, do not come within this description. They are not engaged by a party to form their opinions, and they do not form their opinions for the purpose of the litigation.

As a result, this type of expert (a participant expert) may give opinion evidence for the truth of its contents without complying with the procedural requirements set out in rule 53.03.

Westerhof v. Gee Estate, 2015 ONCA 206 at para 14.

The Court of Appeal for Ontario has been clear that a party does not “engage” an expert “to provide [opinion] evidence in relation to a proceeding” simply by calling the expert to testify about an opinion the expert has already formed.

Westerhof v. Gee Estate, 2015 ONCA 206 at para 82.

A participant witness—a witness with special skill, knowledge, training, or experience who has not been engaged by or on behalf of a party to the litigation—may give opinion evidence for the truth of its contents without complying with rule 53.03 where:

o   the opinion to be given is based on the witness’s observation of or participation in the events at issue, and

o   the witness formed the opinion to be given as part of the ordinary exercise of his or her skill, knowledge, training and experience while observing or participating in such events.

However, if the participant experts also proffer opinion evidence extending beyond the scope of an opinion formed in the course of participation or observation for purposes other than the litigation, they must comply with rule 53.03 with respect to that part of their evidence.

Westerhof v. Gee Estate, 2015 ONCA 206 at para 63

Security for Costs of Appeal (Cont'd)

"For other good reason"

In my November 9, 2016 blog, I discussed motions for security for costs of appeal where there is good reason to believe the appeal is frivolous and vexatious and that the appellant has insufficient assets in Ontario to pay the cost of the appeal: Rule 61.06(1)(a) of the Rules of Civil Procedure.

There is in the appellate context, however, an additional basis for a court to issue an order for security for costs, viz: where there is "other good reason" (Rule 61.06(1)(c)).

This rule does not necessarily require that the respondent to the appeal establish that the appellant has insufficient assets in Ontario to pay the costs of the appeal, or even that the appeal is frivolous and vexatious.

Even when the case is not frivolous and vexatious, a low prospect of success is a factor that may lead the Court ot conclude that it is appropriate to order security for costs.  For instance, in Perron v. Perron, the Court of Appeal for Ontario made an order for security for costs despite not finding the appeal to be frivolous or vexatious.  The low prospect of success on appeal, coupled with the behavior of the appellant which included lengthening the trial process and avoiding liability for his costs at trial was sufficient to allow the Court to make an order for security for costs "for other good reason."

See Perron v. Perron, 2011 ONCA 776 ONCA 776 (CanLII) at paras 21 and 23

In the circumstances, the Court held, it would be very unfair to expose the respondent to the risk that the appellant will not satisfy the costs of appeal.

Rule 61.06 of the Rules of Civil Procedure:

          SECURITY FOR COSTS OF APPEAL

In an appeal where it appears that,

(1)(a) there is good reason to believe that the appeal is frivolous and vexatious and that the appellant has insufficient assets in Ontario to pay the costs of the appeal;

…

(c) for other good reason, security for costs should be ordered,

a judge of the appellate court, on motion by the respondent, may make such order for security for costs of the proceeding and of the appeal as is just.

(2) If an appellant fails to comply with an order under subrule (1), a judge of the appellate court on motion may dismiss the appeal.

Re-opening an Appeal

Courts have long frowned on the practice of raising new arguments on appeal. The concerns are two-fold: first, prejudice to the other side caused by the lack of opportunity to respond and adduce evidence at trial and second, the lack of a sufficient record upon which to make the findings of fact necessary to properly rule on the new issue.

See Chuang v. Toyota Canada Inc., 2016 ONCA 852; College of Optometrists of Ontario v. SHS Optical Ltd. (c.o.b. Great Glasses), 2008 ONCA 6895 (CanLII); Kaiman v. Graham, 2009 ONCA 77 (CanLII), 245 O.A.C. 130, at para. 18

A party seeking to re-open an appeal after the appeal decision has been rendered faces a high hurdle.. In Mujagic v. Kamps, 2015 ONCA 360 (2015 ONCA 360 (CanLII), 125 O.R. (3d) 715, at para. 12, the Court of Appeal for Ontario said that the power to re-open an appeal “will be exercised sparingly and only where it is clearly in the interests of justice”.

Motions for Security of Costs

Appeal    Security for Costs      A respondent to an appeal should consider whether or not to bring a motion requiring the appellant to post security of costs, essentially a payment made by the appellant into court underwriting the costs award against the appellant which might follow if the appeal is ultimately unsuccessful.

An order for security for costs is appropriate when it is unfair to expose the respondent to the risk that the appellant will not satisfy the costs of the appeal if the appeal is unsuccessful. 

Security of costs on appeal is governed by Rule 61.06(1)(a) and (c) of the Rules of Civil Procedure.

For such an order to be granted under 61.06(1)(a), the motion judge must

• have good reason to believe the appeal has no merit and is therefore frivolous and vexatious, and
• have good reason to believe the appellant has insufficient assets in Ontario to cover the costs of the appeal.

Of course, on a practical level it is impossible for a motions judge to assess adequately the merits of an appeal, considering the transcripts and volume of material which will be placed before the appellate court.

In light of this, a judge hearing a motion for security for costs may reach the tentative conclusion that an appeal appears to be so devoid of merit as to give "good reason to believe that the appeal is frivolous and vexatious" without being satisfied that the appeal is actually totally devoid of merit.

Where the appeal has a low prospect of success, more is required to establish the appeal as frivolous and vexatious.

"The words "frivolous and vexatious" imply that the appeal must not only have a minimal chance of success; there must be good reason, on the facts surrounding the litigation, or from the conduct of the appellant, which could lead to a finding that the appeal is without merit and is brought for some other purpose than as is on its face, such as to harm a party or delay the proceedings or a given result."

Baker v. Rego, 2013 ONSC 3309 (CanLII) at para 22

While an appellant may not be able to establish sufficient liquid assets to cover the cost of the appeal, and thus leave the respondent with a formidable collection problem if the appeal is unsuccessful, the appellant may have equitable room in her assets to pay a costs award.  In such circumstances, the appellant should be in a position to provide security for costs by, for example, posting a letter of credit.