Cirque du Soleil Inc. v. Volvo Group Canada Inc. et al.

[Indexed as: Cirque du Soleil Inc. v. Volvo Group Canada Inc.]

Ontario Reports

Ontario Superior Court of Justice,

Chapnik J.

April 29, 2015

126 O.R. (3d) 234 | 2015 ONSC 2698

Case Summary

Civil procedure — Parties — Legal capacity — Plaintiff suing California corporation which was dissolved before action was commenced — Law of place of incorporation determining whether corporation was dissolved — California Corporations Code providing that dissolved corporations continue to exist for purpose of prosecuting or defending actions — Defendant having legal capacity to be sued in Ontario.

The defendant, a California corporation which was dissolved after the event giving rise to the plaintiff's action, but before the action was commenced, brought a motion to dismiss the action against it on the basis that it lacked the legal capacity to be sued in Ontario courts.

Held, the motion should be dismissed. [page235]

The question of whether a corporation has been dissolved is governed by the law of the place of incorporation. The California Corporations Code provides that a corporation which is dissolved continues to exist for the purpose of prosecuting and defending actions by or against it. The defendant had the legal capacity to be sued in Ontario.

Cases referred to

602533 Ontario Inc. v. Shell Canada Ltd. (1998), 1998 1775 (ON CA), 37 O.R. (3d) 504, [1998] O.J. No. 68, 155 D.L.R. (4th) 562, 106 O.A.C. 183, 76 A.C.W.S. (3d) 949 (C.A.); Greb v. Diamond Internat. Corp. (2013), 56 Cal. 4th 243, 295 P.3d 353, 153 Cal. Rptr. 3d 198 (Sup. Ct.); Hal Commodities Cycles Management v. Krish, [1993] O.J. No. 176, 17 C.P.C. (3d) 320, 38 A.C.W.S. (3d) 265 (Gen. Div.); Incorporated Broadcasters Ltd. v. Canwest Global Communications Corp. (2003), 2003 52135 (ON CA), 63 O.R. (3d) 431, [2003] O.J. No. 560, 223 D.L.R. (4th) 627, 169 O.A.C. 1, 31 B.L.R. (3d) 161, 30 C.P.C. (5th) 282, 120 A.C.W.S. (3d) 966 (C.A.), affg 2001 28395 (ON SC), [2001] O.J. No. 4882, [2001] O.T.C. 884, 20 B.L.R. (3d) 289, 113 A.C.W.S. (3d) 54 (S.C.J.); International Assn. of Science and Technology for Development v. Hamza, 1995 ABCA 9, [1995] A.J. No. 87, 122 D.L.R. (4th) 92, [1995] 6 W.W.R. 75, 28 Alta. L.R. (3d) 125, 162 A.R. 349, 34 C.P.C. (3d) 210, 53 A.C.W.S. (3d) 274 (C.A.); Penasquitos, Inc. v. Superior Court (1991), 53 Cal. 3d 1180, 283 Cal. Rptr. 135, 812 P.2d 154 (Sup. Ct.)

Statutes referred to

Business Corporations Act, R.S.O. 1990, c. B.16, s. 242(1)(b)

California Corporations Code, s. 2010(a)

Rules and regulations referred to

Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rules 21, 21.01(3)(b), 57.01

Authorities referred to

Dicey, Albert Venn, Dicey, Morris and Collins on the Conflict of Laws, 15th ed., vol. 2 (London: Sweet & Maxwell, 2012)

Walker, Janet, Castel and Walker, Canadian Conflict of Laws, 6th ed., vols. 1 and 2 (Markham, Ont.: LexisNexis, 2005)

MOTION to dismiss against the moving defendant.

Michael Blinick, for plaintiff (respondent).

Mark Evans, for defendant Volvo Group Canada Inc./ Groupe Volvo Canada Inc. c.o.b. Volvo Penta Canada Inc.

David Bernstein and Adrienne Lipsey, for defendant Power and Electric Co. Inc. (moving party).

Albert Wallrap, for defendant Wenzlau.

Emily Stock, for Wajax Corporation/Corporation Wajax.

[[1]] CHAPNIK J.: — The defendant Power and Electric Co. Inc. ("Power") seeks an order pursuant to rule 21.01(3)(b) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 dismissing the action against it on the basis that, as a dissolved foreign corporation, it lacks the legal capacity to be sued in Ontario courts.

[[2]] I am told that there is no jurisprudence that has permitted a dissolved foreign corporation to sue or be sued in Ontario. The [page236] issues in this case are rooted in the questions of whether the moving party, Power, is indeed a "dissolved" corporation within the meaning of the relevant statutes and jurisprudence; and whether the principles of private international law (or conflicts of law) are applicable in the particular circumstances of this case and, if so, how.

The Facts

[[3]] The underlying material facts may be briefly summarized as follows.

[[4]] The plaintiff produces theatrical shows in which it relies upon large generators to power its productions. The defendant Power, which was incorporated under the law of the State of California, manufactured and supplied the plaintiff with the generators. On September 10, 2012, in a theatrical production held in Toronto, one of the generators malfunctioned and caught fire, allegedly causing the plaintiff substantial property damage and economic loss.

[[5]] Power was dissolved effective January 2, 2013, pursuant to California law upon the voluntary filing of a certificate of dissolution.

[[6]] The plaintiff issued its statement of claim against Power and the other defendants on August 26, 2014 to recover its losses claiming, inter alia, that Power was negligent in the design and manufacture of the generators.

Legal Principles and Analysis

[[7]] The California Corporations Code ("California Code") determines the formation, organization and dissolution of California corporations. Section 2010(a) of the California Code provides:

2010(a) A corporation which is dissolved nevertheless continues to exist for the purpose of winding up its affairs, prosecuting and defending actions by or against it[.]

(Emphasis added)

[[8]] In interpreting s. 2010(a) of the California Code, Power's expert concludes, "it is well settled that section 2010(a) of the California Code permits lawsuits against a dissolved corporation in the state of California".

[[9]] Under Ontario law, a dissolved corporation is not a legal entity and, absent express statutory language, is incapable of suing or being sued. See, for example, 602533 Ontario Inc. v. Shell Canada Ltd. (1998), 1998 1775 (ON CA), 37 O.R. (3d) 504, [1998] O.J. No. 68 (C.A.), para. 14. [page237]

[[10]] However, Ontario's Business Corporations Act, R.S.O. 1990, c. B.16 ("OBCA") creates a statutory exception to this principle by permitting dissolved corporations to be sued in certain situations. Specifically, s. 242(1)(b) of the OBCA reads:

242(1) Despite the dissolution of a corporation under this Act,

(b) a civil, criminal or administrative action or proceeding may be brought against the corporation as if the corporation had not been dissolved[.]

[[11]] What then is the status of Power to defend an action commenced against it in Ontario after the date of the "dissolution" in respect of a dispute that arose prior to its dissolution? In other words, does Power have the legal capacity to be sued in Ontario courts?

[[12]] Power argues that though California law is similar to that of Ontario in providing certain rights of action against dissolved corporations, the California Code cannot apply to actions commenced in Ontario. This is the case, Power submits, because under Ontario law, capacity to be sued is a procedural question governed by Ontario law. Moreover, s. 242(1)(b) of the OBCA applies only to Ontario corporations.

[[13]] In this regard, Power relies upon the following statements in Castel and Walker, Canadian Conflict of Laws, 6th ed., vol. 2 (Markham, Ont.: LexisNexis, 2005), at p. 30-5:

Canadian law recognizes that a foreign corporation can be dissolved under the law of its place of incorporation. If, according to that law, the corporation is in the process of being wound up, it can still sue and be sued in Canada; but if this process has ended and the corporation has been dissolved, it no longer exists in the eyes of Canadian law. Neither the foreign corporation nor an unincorporated Canadian branch can sue or be sued in Canadian courts. Whether the corporation has been dissolved is a question of fact based on the evidence of the foreign law concerned.

(Emphasis added)

[[14]] Based largely on the above, and because there is no statutory exception that directly permits Power to be sued in Ontario, the defendant asks that the action against it be dismissed. In summary, it asserts that, although both the OBCA and California law permit actions against dissolved corporations, neither assists the plaintiff. The OBCA applies only to Ontario corporations. California law is irrelevant because this is a procedural matter, to be determined by Ontario law.

[[15]] I disagree.

[[16]] My interpretation of the relevant law to be applied to this set of circumstances accords with that of the plaintiff and the other defendants who supported the plaintiff's position. [page238]

[[17]] Clearly, the principles of private international law apply here. As noted in Castel and Walker, vol. 1, at p. 6-4:

The lex fori also governs whether a dissolved corporation can be made a party to the litigation, although the question of whether a corporation has been dissolved must be decided by reference to the law of the place of the alleged incorporation.

(Emphasis added)

[[18]] Similarly, this principle is confirmed in jurisprudence in the United Kingdom. Dicey, Morris and Collins on the Conflict of Laws, 15th ed., vol. 2 (London: Sweet & Maxwell, 2012), at p. 1533, state that ". . . whether a corporation has been dissolved must be determined by the law of its place of incorporation".

[[19]] As noted above, the California Code specifically permits a dissolved corporation to "continue to exist" for various purposes, including "prosecuting and defending actions by or against it".

[[20]] The court in Greb v. Diamond Internat. Corp. (2013), 56 Cal. 4th 243, 295 P.3d 353 (Sup. Ct.), at p. 3, citing Penasquitos, Inc. v. Superior Court (1991), 53 Cal. 3d 1180, 283 Cal. Rptr. 135 (Sup. Ct.), describes the effect of this as follows:

Under [the California statutory scheme] the effect of dissolution is not so much a change in the corporation's status as a change in its permitted scope of activity. . . . Thus, a corporation's dissolution is best understood not as its death, but merely as its retirement from active business.

[[21]] Clearly, Power is not a non-entity for the purpose of this lawsuit despite its filing and the issuance of a certificate of dissolution. The California Code specifically provides an exception to the non-existence of a dissolved corporation. It continues to exist for this purpose.

[[22]] The previous quote from Castel and Walker (see para. 13, above) relied upon by the defendant appears to have been taken out of context as it applied to a situation where the issue was whether the foreign corporation could sue in Ontario. In any event, the last sentence of the passage quoted clearly states that the issue of dissolution of a corporation is a question of fact based on the evidence of the foreign law concerned.

[[23]] On the facts of this case, the evidence is clear and unambiguous that Power was never "dissolved" but that it continues to exist for, among other things, the purpose of this lawsuit. However, the inquiry does not end here because it still must be determined whether Power has the capacity to be sued in Ontario.

[[24]] The decision in Hal Commodities Cycles Management v. Krish, [1993] O.J. No. 176, 17 C.P.C. (3d) 320 (Gen. Div.) ("Hal Commodities") relied on by Power related to a situation where a foreign dissolved corporation sought to bring an action in [page239] Ontario. In Hal Commodities, the court precluded an action by a foreign corporation that no longer existed from proceeding in Ontario. This finding reflects Ontario law which prevents corporations from commencing proceedings without first being revived. Similarly, the decision in 602533 Ontario Inc. v. Shell Canada Ltd., supra, upon which Power also relies, deals with whether or not a dissolved corporation "exists as a legal entity" for the purpose of bringing a subsequent proceeding under the OBCA.

[[25]] It is well-settled law that matters of internal management affecting the status of a corporation should be determined by the courts of the corporation's domicile: Incorporated Broadcasters Ltd. v. Canwest Global Communications Corp., 2001 28395 (ON SC), [2001] O.J. No. 4882, [2001] O.T.C. 884 (S.C.J.), affd (2003), 2003 52135 (ON CA), 63 O.R. (3d) 431, [2003] O.J. No. 560 (C.A.).

[[26]] In a conflict of laws situation, determination of the proper law governing an issue is made by characterizing the issue as either substantive or procedural: International Assn. of Science and Technology for Development v. Hamza, 1995 ABCA 9, [1995] A.J. No. 87, 162 A.R. 349 (C.A.), at para. 8. Hence, the legal status of a foreign entity will be recognized by local courts based on principles of private international law.

[[27]] A review of this issue indicates that based on the international private law principles the narrow issue of the capacity to be sued in Ontario is a substantive one to be determined by, in this case, California law.

[[28]] Janet Walker tackles the policy underlying this issue in Castel and Walker, at pp. 6-2 and 6-3:

As a matter of policy it would seem desirable to restrict the scope of the procedural definition so as not to frustrate the fundamental purposes of the conflict of laws. The test should be: is the foreign rule too inconvenient to apply? If the answer is "no" the foreign rule is substantive.

(Emphasis added)

[[29]] According to Walker, if the foreign law can be applied without hindrance, it should be characterized as substantive.

[[30]] In this case, the alleged damage to the plaintiff occurred in September 2012. Shortly thereafter (about three months after the fire), Power voluntarily filed for dissolution which became effective January 2, 2013. There is little risk of having to conduct and resolve the issue of its liability in an "unfamiliar manner". The matter is not complex and the rule in the California Code would not be too inconvenient to apply.

[[31]] Accordingly, in the instant case, I find Power has the legal capacity to be sued in Ontario for damages arising from its alleged negligence. [page240]

Conclusion

[[32]] The issue of the legal capacity of Power to be sued in Ontario requires the court to apply principles of private international law or conflict of laws, that is, rules that coordinate the involvement of various legal systems other than that of Ontario. In applying those principles to the facts herein, although the question of dissolution is procedural and, thus, governed by Ontario law, it is California law that determines and establishes substantively the issue of legal status. Given the express statutory language in both jurisdictions, the only reasonable conclusion is that Power has the legal capacity to be sued in Ontario. This is consistent with domestic law dealing with dissolved domestic corporations.

[[33]] As a matter of policy, each jurisdiction has developed procedures that prevent defendant corporations from dissolving out of existence to avoid lawsuits. A corporation cannot simply file for dissolution and expect to be immune from liability arising from its alleged negligence committed prior to dissolution. The principles of private international law do not condone such conduct, particularly in the circumstances where each jurisdiction has developed a mechanism to prevent this result.

[[34]] Accordingly, the Rule 21 motion brought by Power for an order dismissing the action against it is denied.

[[35]] Each of the named defendants submitted written materials on costs and, other than counsel for Wajax Corporation ("Wajax"), also made oral submissions at the hearing. They each claim costs in the approximate sum of $5,000 and Wajax seeks $2,500 in costs. The costs sought by the defendant Power were approximately $9,000 on a partial indemnity basis. Given that all the materials filed were helpful to the court, and considering the principles outlined in rule 57.01 and the relevant jurisprudence, it is my view that a reasonable and fair assessment of costs within the reasonable expectation of the parties would be to award the plaintiff who had principal carriage of the matter $5,000, Volvo Group Canada Inc. and Wenzlau Engineering Inc. each $4,000, and Wajax $2,500, for a total award of $15,500 in costs against Power for the motion, inclusive of HST and disbursements; and I so order.

[[36]] I commend all counsel for their succinct and helpful presentations.

Motion dismissed.

End of Document