CANADA Law and Practice Contributed by: John Pirie, Matthew Latella, Michael Nowina and Bryan Hsu, Baker McKenzie
3.2 Claims Against Ultimate Beneficial Owners Claims can be brought against individuals standing behind companies when the company is being used as a vehicle for fraud by piercing the corporate veil. A court will consider whether the corporation is: (i) completely dominated and controlled; and (ii) being used as a shield for fraudulent or improper conduct. When the two elements are present, the corporate veil will be lifted to prevent the individual from being shielded from liability. Additionally, company principals (including directors, officers and shareholders) may be held personally liable for their own tortious conduct when civil fraud has been pled and proven, and/or when their conduct exhibits a separate identity or interest from that of the company so as to make the act or conduct their own. Where the tortious conduct at issue is a fraudulent misrepresentation, it may be presumed that the act was that of the individual, even where that individual was acting as a representative of the company. 3.3 Shareholders’ Claims Against Fraudulent Directors Under various provincial, territorial and federal cor - poration acts, shareholders may apply to the court for permission to bring a derivative action on behalf of a company, including against fraudulent directors. The goal in a derivative action is to recover for wrongs done to the company itself. To obtain leave to bring a derivative action the court will need to be satisfied that: • the corporate directors will not pursue the claim; • the complainant is acting in good faith; and • it appears in the best interests of the corporation that the action be brought. Shareholders and other complainants may also seek redress against fraudulent directors through the oppression remedy. Unlike the derivative action, an individual complainant does not need to obtain leave from the court to pursue an oppression claim. It allows the individual complainant to recover for wrongs done by the company or because the affairs of the company are being conducted in manner that is oppressive or
unfairly prejudicial to, or that unfairly disregards the interest of, the complainant.
4. Overseas Parties in Fraud Claims 4.1 Joining Overseas Parties to Fraud Claims The rules applicable to joining overseas parties may depend on the rules of procedure in the province. Generally, a Canadian court may add additional par - ties where the claims for relief arise from the same occurrence, there is doubt as to the persons from whom the applicant is entitled relief or where doing so would promote the convenient administration of justice. Canadian courts apply a two-stage “real and sub - stantial connection” test for taking jurisdiction over a foreign party. At the first stage, the claimant must establish a “connecting factor” between the subject matter of the litigation and the forum, which creates a presumption of jurisdiction. Such a presumption can be based on factors such as residence, carrying on business activity, committing torts or forming con - tracts in the specific jurisdiction within Canada. At the second stage, the defendant can seek to rebut the presumption by demonstrating the weakness of the connection. The test is designed to prevent judi - cial overreach and reconcile fairness with the need for security, stability and efficiency in conflict of laws. The focus is on the defendant’s connection to the jurisdiction, not the relationship of the dispute to the jurisdiction. Finally, even after jurisdiction is established, a court may nonetheless opt not to exercise its jurisdiction if adjudication in another jurisdiction is determined to be more appropriate under the doctrine of forum non conveniens. 4.2 Service of Proceedings out of the Jurisdiction Service of proceedings out of the jurisdiction may be made without leave of a court. By way of example, in the province of Ontario, there is a list of specific categories of types of claims connected to Ontario for which service ex juris may be made without leave,
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