Is Corporate Successor Liability A Dead Doctrine In Canada?

The American doctrine of successor liability has long been the source of fear for the parties to an asset purchase agreement.

The doctrine provides that a purchaser corporation, which has acquired the assets of another company but not its shares, may be held responsible for the liabilities of the seller corporation. This can occur even where those liabilities were expressly not assumed in the acquisition.

Most liabilities on successor corporations are statutorily imposed. They require the successor company to pay out wages or engage in environmental remediation as a result of the predecessor's conduct.

However, at common law, the doctrine can also hold the successor company liable for contractual breaches or the tortious actions of the seller company.

In Canada, the doctrine is shrouded with mystery.

The Alberta Court of Queen's Bench effectively declared it dead in a 2016 decision, Cooperative Centrale v. Liebig 2016 ABQB 417.

By contrast, in 2018, the Ontario Superior Court in Talbot v. Nourse, 2018 ONSC 1061, may have resurrected the doctrine. The Court held that "[t]he theory has been accepted as potentially applicable in Canada".

The status of successor liability at Canadian common law is accordingly ripe for appellate review.

Why the Resistance?

Successor liability has never been fully resolved in Canada.

Unlike in the United States, where cases such as Ramirez v. Amsted Industries Inc., 431 A. 2d 11 (Sup. Ct., 1981), have firmly grounded the doctrine in American jurisprudence, Canadian Courts have only ever entertained the doctrine in the context of preliminary motions.

In these Canadian decisions, the defendant successor corporations have brought motions to remove themselves as parties to civil actions on the basis that they were never involved in the tortious conduct of their predecessor or were never parties to the contract which the seller executed.

On these motions, Canadian Courts have largely rejected the application of successor liability.

There are principled reasons for doing so.

Citing Wayne D. Gray's leading article on the issue, "The Case Against Adopting a General Doctrine of Successor Liability", 53 CanBusLJ 116 (HeinOnline), the Alberta Queen's Bench in Liebig declined to apply the doctrine in a negligence action against the successor defendant accounting firm which had purchased the assets (and not the liabilities) of its predecessor. The successor had no involvement in the underlying matters giving rise to the...