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Potential New Avenue of Liability of Parent Companies

By Erin Crochetière

In Avedian v. Enbridge Gas Distribution Inc., 2021 ONCA 361 the Court of Appeal granted an appeal from an order granting summary judgment on the basis that the motion should not have been allowed to proceed after the trial had been scheduled. The Court of Appeal also commented on the potential liability of parent companies.

The action arose out of an explosion causing extensive damage to a building. The fire appears to have been caused by the improper installation of the gas regulators outside the building.

Enbridge Gas Inc., a subsidiary of Enbridge Inc., had contracted with a subcontractor to service the regulators, and there were three other layers of subcontractors retained in the context of servicing the regulators. The plaintiffs pled that Enbridge Inc. was negligent for failing to properly oversee its subsidiary, contractors, and subcontractors. 

In March of 2018, a ten week trial was scheduled for February 2020. In August of 2019, the respondents, Enbridge Gas Inc. and Enbridge Inc., brought a motion for summary judgment seeking a dismissal of the action against them. The trial date was vacated and the summary judgment motion was heard in writing in April of 2020.

The judge on the summary judgment motion dismissed the action against Enbridge Inc. on the basis that it had no control over its subsidiary and there was no reason to lift the corporate veil as between them. The action against Enbridge Gas Inc. was stayed as the corporation had been dissolved. The motion judge awarded $175,000 in costs against the plaintiffs.

The Court of Appeal held that the summary judgment motion should not have been permitted to proceed once the trial had been scheduled. The Court cited the Toronto Practice Direction, which provided: “[o]nce trial dates are set, there will be no adjournments of the trial except in extenuating and exceptional circumstances.”

The Court held the purposes of the Practice Direction was to prevent this type of last minute manoeuvering by a party to the prejudice of other parties and that there were no extenuating circumstances in this case. The Court further found that the summary judgment motion added unnecessary delay, expense and squandered court time.

Although the Court’s finding regarding the timing of the summary judgment motion would have been sufficient to allow the appeal, the Court goes on to consider the summary judgment motion on its merits.

The Court of Appeal determines that there is a genuine issue for trial as to whether Enbridge Inc. has a direct duty of care, as a parent company to Enbridge Gas Inc., to the plaintiff to control or otherwise influence its subsidiary corporation in a non-negligent manner.

The plaintiffs’ arguments were based on public representations made by Enbridge Inc. that it would supervise the operations of Enbridge Gas Inc. The plaintiffs argued that these public statements established a relationship of proximity, and consequently, a duty of care.

The plaintiffs relied on recent case law from the U.K. Supreme Court and the Court of Appeal England and Wales, which held that a parent corporation can be liable to third parties for its acts or omissions in controlling or otherwise influencing the actions of a subsidiary, based on ordinary principles of tort law.

The Court of Appeal found that the motion judge did not engage with the plaintiffs’ arguments on this novel issue and that there is a triable issue. The appeal was allowed and the costs order was set aside.

This decision raises a number of interesting issues. The first is that parties should be wary of delaying in bringing summary judgment motions.

Further, the case suggests that the Court of Appeal would consider adopting the English/Welsh approach to liability of parent companies in tort and, accordingly, parent companies may face a new, and direct, avenue of exposure.

This seems to be a marked departure from previous Ontario jurisprudence. As the law presently stands, a plaintiff seeking to establish liability on a parent company for the actions of its subsidiary would have to pierce the corporate veil, traditionally something that Courts are reluctant to do.

Indeed, the test for piercing the corporate veil is stringent. As outlined by the Court of Appeal in Yaiguaje v. Chevron Corporation, 2018 ONCA 472, in order for the Court to pierce the corporate veil, a plaintiff must demonstrate that the parent company had complete control or dominion over the subsidiary corporation. 

If a novel duty of care is recognized, as argued by the plaintiffs and not rejected by the Court of Appeal in this case, plaintiffs will be able to claim against parent companies directly in negligence.