Michael Walsh

A franchisor appealed from summary judgment dismissing its claim against a corporation's sole officer, director, and shareholder after the corporation had been found liable for misappropriating funds remitted for payment of utility invoices.

The Court of Appeal held that the individual was not personally liable under the pre-incorporation contract provisions because the corporation had adopted the agreement by conduct, but he was personally liable because he expressly directed the wrongful diversion of funds and the corporate veil should be pierced under Ontario law.

The court upheld the use of summary judgment, rejected reliance on a transition release obtained in the face of material non-disclosure, and found no binding 2007 replacement contract.

Damages were varied downward to reflect conceded deductions and an additional admitted set-off, and appeal costs were awarded against the corporation and the individual jointly and severally.

Following earlier summary judgment and Rule 21 rulings, the court determined the appropriate costs award between the parties.

The plaintiff obtained summary judgment against the corporate defendant for misappropriated funds and successfully resisted the individual defendant’s Rule 21 motion challenging the pleadings, but failed on its claim against the individual defendant under Rule 20.

The court held that costs should follow the overall result and rejected the defendants’ argument that costs should be parsed according to individual legal arguments or sub‑issues.

Taking into account the plaintiff’s partial lack of success against the individual defendant, the court reduced the claimed amount and awarded partial indemnity costs.

The two defendants were held jointly and severally liable for the costs award.

The plaintiff franchisor contracted with the corporate defendant to manage and pay utility bills for its stores.

Upon terminating the contract, the plaintiff transferred over $1.3 million to the corporate defendant to pay outstanding bills.

The corporate defendant misappropriated the funds, transferring them to its operating account instead of paying the utilities, and subsequently signed a mutual release without disclosing the misappropriation.

The plaintiff brought a motion for summary judgment for the return of the funds, and the personal defendant moved to dismiss the claims against him.

The court granted summary judgment against the corporate defendant, finding it was unjustly enriched and that the mutual release was vitiated by fraudulent misrepresentation.

However, the court dismissed the claims against the personal defendant, finding no basis to pierce the corporate veil.