Ontario Court of Appeal Clarifies the Test for Piercing the Corporate Veil

In what circumstances can a plaintiff pierce the corporate veil and hold shareholders personally liable for the corporation's wrongful conduct?

In its recent decision in Chanderpaul v. Caesars Convention Centre Ltd., 2026 ONCA 332, the Court of Appeal for Ontario affirmed that plaintiffs face a very high onus where they seek to pierce the corporate veil, but provided important guidance on the types of conduct that may attract personal liability.

Background

The appellant, Michelle Chanderpaul, was injured in a car accident caused by a drunk, underage driver. Prior to the accident, the driver had used a fake ID to buy alcohol at a nightclub operated by Caesars Convention Centre Ltd. (Caesars). Rajesh and Kanta Kaura (the Kauras) were the directors and shareholders of Caesars and of R.K.S. Investments Ltd. (R.K.S.), which owned the property where Caesars operated. After Caesars was noted in default, the Kauras dissolved the corporation and sold its assets at a loss.

Chanderpaul brought claims against the Kauras and R.K.S., alleging, among other things, that they had recklessly operated Caesars, rendered it judgment-proof by dissolving it, and failed to properly insure it. The motion judge granted summary judgment dismissing the claims, concluding that the pleadings and evidentiary record were insufficient to pierce the corporate veil. Chanderpaul appealed.

The Court of Appeal's Decision

In a unanimous decision, the Court of Appeal dismissed the appeal but identified two errors in the motion judge's analysis of the corporate veil.

The Transamerica Test

The Court of Appeal reaffirmed the test for piercing the corporate veil set out in Transamerica Life Insurance Co. of Canada v. Canada Life Assurance Co. (1996), 28 O.R. (3d) 423 (Gen. Div.) (Transamerica), which provides that courts will disregard the separate legal personality of a corporate entity where it is:

1. Completely dominated and controlled; and
2. Being used as a shield for fraudulent or improper conduct.

The first element requires not just ownership or control, but "complete domination or abuse of the corporate form." The second element requires a link between the fraudulent or improper conduct and the liabilities the claimant seeks to enforce.

Wrongful Conduct Need Not Be "Outside" the Directing Mind's Role

In the Court below, the motion judge had suggested that, to pierce the corporate veil, the impugned conduct must have been taken outside the shareholders' role as a directing mind or unrelated to the operation of the defendant. The motion judge also suggested that the impugned conduct must be independently actionable against the shareholders. On that theory, the Kauras' alleged misconduct—including violations of the Liquor Licence Act and encouraging overservice—could not ground a veil-piercing claim because it was related to the operation of the corporation.

The Court of Appeal rejected that suggestion. The "corporate veil can be pierced if those in control expressly direct a wrongful act to be done by the corporations, regardless whether these are acts 'related to the operation of the corporate defendant itself' or form 'part of the role as a directing mind' of the corporation." Instead, the "question is simply whether the corporate entity is completely dominated and controlled and whether 'those in control expressly direct a wrongful thing to be done.'" There is no additional requirement that the corporate form be specifically used to conceal or evade liability.

Wrongful Conduct Is Not Limited to the Time of Incorporation

The Court of Appeal also rejected the motion judge's suggestion that because Caesars was not incorporated for an unlawful purpose, allegations about how it was later operated could not satisfy the second element of the Transamerica test. The Court of Appeal held that "wrongful conduct is plainly not limited to the time of incorporation." The relevant inquiry is whether the corporation is being used as a shield for fraudulent or improper conduct, not whether it was originally incorporated for such a purpose.

Despite these errors, the Court dismissed the appeal, holding that the evidentiary record fell short of the high threshold to pierce the corporate veil. The appellant's evidence (advertisements promoting alcohol sales, photographs of patrons holding drinks, sales records from four servers the night of the incident, and a forensic accountant's opinion that Caesars' revenue could not be reliably determined) did not establish the requisite systemic wrongdoing. The Court emphasized that "corporate separateness is the rule" and that only "exceptional cases that result in flagrant injustice warrant going behind the corporate veil".

Takeaways

Chanderpaul makes clear that shareholders and directors who expressly direct a corporation to commit wrongful acts cannot hide behind the corporate form simply because the misconduct was carried out in their capacity as directing minds or related to the corporation's operations. Similarly, the fact that a corporation was incorporated for a lawful purpose will not protect a shareholder if the corporate form is later used to facilitate fraudulent or improper conduct. By rejecting the additional requirements imposed by the motion judge, the decision may make it somewhat easier for plaintiffs to argue that the Transamerica test is met in cases where controlling shareholders direct wrongful corporate conduct through the corporation.

Nonetheless, the evidentiary bar remains high. Corporate separateness continues to be the default, and plaintiffs who seek to pierce the veil must demonstrate more than isolated operational shortcomings—they must establish systemic abuse of the corporate form amounting to flagrant injustice.

*The authors are grateful to Jacyln Ho for her assistance in preparing this post.