AuthorSarro, Douglas


If Canadian corporate statutes include rules providing that a corporation and its shareholders are separate legal persons, what lets courts disregard these rules by piercing the corporate veil? (1) Previously confined to academic debate, this question entered the judicial limelight with the Court of Appeal for Ontario's decision in Chevron. (1) In his majority reasons, Hourigan JA cited the "clear policy choice" (3) reflected in Parliament's inclusion of such rules in the Canada Business Corporations Act (CBCA) (4) as a basis for freezing the expansion of the test for piercing the corporate veil. In his view, a closed-ended test that removes judges' residual discretion to pierce the veil where "the interests of justice demand it" (5) would provide a level of "certainty and clarity" more in keeping with legislative intent. (6) By contrast, Nordheimer JA's concurring reasons, advocating for an open-ended test that retains this residual discretion, cited courts' inherent power to "invok[e] equity to make exceptions" to rules. (7)

The Supreme Court of Canada (SCC)'s subsequent decision in Nevsun, (8) though not formally involving veil-piercing, nonetheless sits uneasily with Chevron's closed-ended test. This article uses Nevsun as a jumping-off point to revisit the rules of corporate personhood and their limits. In setting the backdrop for this discussion, it also examines some broader ideas about the choices available to the drafters of legal directives that perhaps underlie Hourigan JA's reasons in Chevron.

Part I introduces how these choices commonly are framed: as lying along a spectrum, with clear rules at one end and open-ended standards at the other. On this framing, any attempt to change the drafter's chosen point on this spectrum through interpretation (e.g., by reading in exceptions to legislative rules of corporate personhood) interferes with the drafters intent. Part II illustrates Canadian business law's lack of fit with this model by presenting four instances in which, rather than making one-off choices between rules and standards, legislatures layered catch-all standards on top of more specific rules. Within these hybrid structures, standards develop with reference to their corresponding rules, lending them greater predictability, while at the same time making these rules less prone to obsolescence. Rather than acting in opposition to one another, the rules and standards sitting within these structures complement and reinforce each other. Part III argues that the rules of corporate personhood and the standard for piercing the corporate veil should be viewed as another example of this hybrid structure. Legislatures would have had reason to intend that the rules of corporate personhood and an open-ended standard for piercing the corporate veil work together, and legislative behaviour is consistent with such an intention. Accordingly, re-adopting an open-ended standard for piercing the veil would seem to further legislative intent, not frustrate it.


    The components of legal directives commonly are framed as lying between two opposing poles: rules, which have content before they are applied to a dispute, so that they are easy to follow and apply; and standards, which gain content only when they are applied to a dispute, so that their application can be tailored to reflect the unique circumstances brought to light in a dispute. (9) Speed limits are an oft-cited example of a rule. (10) Because a speed limit has content when it is created (e.g., "drive no faster than 60 kilometres per hour"), drivers can plan their conduct to avoid breaking the rule (by driving below the speed limit), and disputes over the rule's application should be easy to resolve. (11)

    A requirement to "drive prudently", by contrast, lies squarely on the standards end of the spectrum. It has no content when it is created--drivers can only speculate as to what "prudent" driving looks like. (12) Determining this requires some exercise of judgment, such that reasonable people might reach different conclusions about whether someone's driving is prudent, heightening the likelihood and likely complexity of disputes. (13) To the extent that parties act based on mistaken beliefs about the content of a standard, they may harm others--a risk that could have been mitigated had the expectations placed on them been phrased in the form of a rule. (14)

    In which case, why use a standard rather than a rule ? While rules might appear easy to follow and apply, they also run the risk of being over- and underinclusive. (15) Returning to our speed limit example, driving slightly over a speed limit in clear weather with little or no traffic may create little risk of harm to others, but nonetheless is captured by the rule; driving at the speed limit on an icy road with pedestrians nearby may create significant risks of harm to others but nonetheless would comply with the speed limit. The risk of over- and under-inclusion may not be static. It may tend to increase over time, as outside circumstances evolve in ways a rule might not anticipate--for example, self-driving cars may be capable of travelling safely at speeds that exceed a speed limit designed with only human drivers in mind. (16)

    Applying an economic lens, choosing an appropriate point along the rules-standards spectrum would seem to be a matter of weighing the higher interpretation costs that would come with adopting something that looks more like a standard, including costs inflicted on third parties when regulated actors reach mistaken beliefs about what a standard requires of them, against the costs of over- and under-inclusiveness that would come with adopting something that looks more like a rule, coupled with any costs expended tailoring a rule to minimize its over- and under-inclusiveness. (17)

    Measuring these costs means predictinghuman behaviour and legal and social developments--something far easier said than done. (18) One of the many complicating factors is that those tasked with complying with, enforcing, and applying legal directives may tend to push against whatever choice the drafter makes. (19) Police officers enforcing a speed limit may choose to let drivers off with a warning if they were driving slightly over the limit and did not appear to be putting others in danger, while a traffic court might accept a ticketed driver's argument that the speed limit has an implied exception for cases of emergency. (20) And police officers enforcing a directive to drive prudently might adopt a policy of only pulling over a driver if they exceed a particular speed, while traffic court decisions might adopt speed thresholds and other rules as heuristics for determining whether someone has failed to drive prudently, perhaps borrowed from guidelines published by a motorists' organization. In each case, the original rule or standard continues to exist on the books, but in its application the rule has become more standard-like, and the standard more rule-like.

    Rules' and standards' tendency to converge typically is cast as a fact of life--the natural consequence of the adaptive behaviour of the subjects, enforcers, and appliers of legal directives--rather than as something drafters might want to encourage. (21) Indeed, drafters are advised to establish crisp boundaries between rules and standards to try and stave off this assumed interference with their intent. (22) For example, the drafter could make clear that the rule and standard are to be applied at different stages of analysis (e.g., a rule that determines which of two standards applies to a set of facts), (23) or serve distinct purposes (e.g., a prohibition on perjury paired with a defence for duress). (24) Alternatively, if the drafter insists on pairing a rule with a standard that serves as an open-ended exception to the rule (e.g., an exception that lets a court dispense with a rule "in the interests of justice"), (25) they should find a way to make clear that the standard is available only in extreme circumstances. (26) Anything less, it is warned, and interpreters will not be able to resist the urge to resort to the standard, such that the rule inevitably will be subsumed by the standard and the drafter's intent will be defeated. (27)

    That said, some have contemplated the possibility of providing a larger role to standards that overlap with rules, (28) while others have even recommended it in specific contexts. (29) And there is one area where this overlap both exists and is acknowledged as useful: tax law, where detailed tax rules co-exist with catch-all anti-avoidance standards. (30) The rules cover common transactions, providing most parties with certainty about the tax treatment of their transactions. The standards respond to uncommon or novel transactions that otherwise would be taxed incorrectly under the rules. Capturing these transactions is important because if an uncommon transaction results in a windfall as a result of mis-taxation, it will not stay uncommon for long--others will copy the transaction, undermining the effectiveness of the tax system as a whole. (31) Through this hybrid structure, in which "individuals know that standards will trump rules to provide an appropriate result" when they try to shelter income by skirting the boundaries of existing rules, "there will be no incentive to discover the odd mis-taxed transaction", making it less likely that these transactions will occur and making tax rules more resilient--that is, less likely to require amendment or elaboration over time. (32) It is suggested, however, that there is reason to believe this dynamic is less significant in other areas of law, perhaps making this structure less likely to be appropriate outside of tax law. (33)


    And yet Canadian business law is replete with examples of similar structures, in which broad standards overlay publicly and privately...

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