The Second Opinion: The B.C. Court Of Appeal Preserves The Corporate Veil Sort Of

In a just-released decision, the British Columbia Court of Appeal declined to pierce the corporate veil between a group of related entities.

The pertinent facts of the decision in XY, LLC v. Zhu, 2013 BCCA 352 are as follows. XY, LLC ("XY") licenced technology to JingJing Genetic Inc. ("JingJIng"). Mr. Zhu was the controlling shareholder of JingJing and a related group of companies (the "IND Group"). JingJing provided XY with false reports concerning revenues it received from the use of XY's technology, underpaid royalties to XY, concealed documents from XY, and violated its confidentiality agreement with XY. JingJing was found liable for breach of contract and the tort of deceit. JingJing, however, became insolvent.

On appeal, XY sought to pierce the corporate veil so as to extend liability to members of the IND Group. XY argued that the acts of the employees of JingJing should be attributed to the IND Group. The B.C. Court of Appeal rejected this theory of "infective liability." The Court ruled that the employees were acting for JingJing and that only JingJing had a contractual obligation to report its revenues from the use of the technology. The employees were not acting on behalf of or for the benefit of the IND Group (at para. 84).

Although recognizing that "the disregarding of a group of related corporations is highly fact-dependent and does not admit of any clear test or rules", the Court noted that the veil has been lifted in instances of fraud. However, in the instant case, "XY was not...