In what appears to be a novel decision in the regulatory context, a judge has held an owner of an electrical contracting firm personally liable for the company’s regulatory fines after he transferred assets out of the company following a fatal incident.
In 2014, an elderly man died from burns after being found lying on his bathroom floor, which had overheated. It turned out that the overheating was caused by the negligence of one of the contractor’s employees four years earlier when he installed an underfloor heating mat in the bathroom.
The company pleaded guilty to three charges under the Electricity Act in respect of the installation. The court fined the company $430,000.
The judge found that the owner had transferred assets, including property, out of the company after he learned that the company was going to be charged, in order to avoid having to pay a fine. The judge also stated that the owner had been dishonest in his testimony, and misleading to the Electrical Safety Authority. The company was evidently left with no, or very few, assets to pay the fine.
The judge decided to “pierce the corporate veil” and require the owner and a related entity, to which he had transferred assets, to pay the fine. In a rather scathing decision, the judge held that the owner, by blurring the lines between himself and the company, had put his own personal assets at risk. The judge decided that although no statute gave him the power to “pierce the corporate veil” and make the owner personally liable, a judge should do so where it would be “too flagrantly opposed to justice” not to. The judge stated:
If Mr. Merante had simply shuttered Pro-Teck and left its assets intact and gone on and opened up Master Electric, he could not have been faulted . . . But he did not simply do that. Two roads diverged before him and Mr. Merante took the one marked self-interest and deceit rather than the one that was marked by his duty to respect his obligations as a shareholder and his duty to accept that the protections that came with Pro-Teck’s corporate status also created responsibilities.
In the result, the judge decided that the owner’s “acts deprive him and Master Electric, both beneficiaries in one way or another of the diversion of assets, of their legal separateness from Pro-Teck. He in effect treated all three legal entities as one; as he sowed, so shall he reap. The fines levied against Pro-Teck may be recovered from Mr. Merante personally and from Master Electrical Contracting Services Ltd., 2433302 Ontario Ltd.”
It is unknown at this time whether this decision has been appealed. Although the owner’s behaviour was clearly troubling to the judge in this case, it is an open question as to whether an appeal court would decide that the judge had the legal authority to “pierce the corporate veil” and make the owner personally liable for the fine.
R. v. 1137749 Ontario Ltd. (operating as Pro-Teck Electric), 2018 ONCJ 502 (CanLII)