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I wouldn't worry too much. All sorts of strange propositions are held to be sufficiently arguable to avoid summary dismissal.

John Sheahan
Sydney

On 11/05/2006, at 5:28 AM, John Swan wrote:

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?