Restitution Discussion Group Archives
| Sender: |
John Swan |
| Date: |
Wed, 10 May 2006 15:28:44 -0400 |
| Re: |
Restitution from Parent for the actions of a Subsidiary |
There is a decision of the Ontario Court of Appeal, Smith
v. National Money Mart Company, which seems to me to say some
odd things about the relation between corporate law and restitution.
This is another case involving the certification of a
class action. The argument of the plaintiff was that the defendant, Money
Mart, lent money at an interest rate that exceeded the criminal rate.
The defendant was the wholly owned subsidiary of Dollar Financial Group,
the other defendant. One of the claims of the plaintiff was based on unjust
enrichment of both sub and parent.
Feldman J.A., giving the judgment of the court, said
with respect to this claim:
Unjust Enrichment
[21] On this appeal, it is only necessary to show a good,
arguable case for the pleaded causes of action, as a foundation for a
real and substantial connection between the appellant and Ontario. In
this case, there was evidence in the record to show that the appellant
was not merely the ultimate parent of Money Mart, but that it was enriched
by receiving substantial royalties and management fees based on its contribution
to the pay-day loan portion of Money Mart’s business, that the respondent
suffered a deprivation and that the enrichment was unlawful … This argument suggests to me that Feldman J.A. is saying
that one can "trace" the subsidiary’s ill-gotten gains
into the hands of the parent corporation on no other basis than that the
parent earned royalties and management fees from its subsidiary. The court
also held (¶ 22) that the plaintiffs could be held liable for a constructive
trust on the basis that (i) the sub was nothing but the alter ego
of the parent and (ii) the unjust enrichment of the parent already mentioned.
What seems to have moved the Court of Appeal was, once
again, its perception of the defendants as bad people. Evidence of their
badness was that they both knew about the existence of the criminal rate.
There does not seem to be anything in the case to differentiate the relation
of this parent to its sub from that of any other parent to its sub or
subs, yet the Court seems to blow away the corporate veil without any
difficulty.
Does anyone else see this development as disturbing?
John Swan
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