Court finds dissolved California corporation eligible to be sued in Ontario

October 27th, 2015 by

By Michelle Stephenson

In Cirque du Soleil Inc. v. Volvo Group Canada Inc. et al., one Defendant, Power and Electric Co. Inc., sought to have the action against it dismissed on the basis that, as a dissolved foreign corporation, it lacked the capacity to be sued in Ontario courts.

This Defendant was a California corporation and a supplier of generators used by Cirque du Soleil in their performances. During one of these performances in Toronto on September 10, 2012, one of the generators malfunctioned and caught fire, causing the damage that was the subject of this lawsuit. In January 2013, Power and Electric was voluntarily dissolved.

In August 2014, Cirque du Soleil issued its claim, alleging negligence in the design and manufacturing of the generators.

Under Ontario law, the Ontario Business Corporations Act allows civil, criminal or administrative actions to be brought against corporations, as though they had never been dissolved. Power and Electric argued that as a business incorporated in California, the OBCA does not govern issues such as its legal status. However, the California Corporations Code similarly states that a dissolved corporation continues to exist for the purposes of prosecuting and defending actions by or against it.

While it is well established that lawsuits can be brought against dissolved corporations within California, the question raised was whether a lawsuit against a dissolved California corporation could be brought in Ontario.

Power and Electric relied on the principle that once a foreign corporation has been dissolved, it “no longer exists in the eyes of Canadian law” and asserted that it therefore cannot sue or be sued in this jurisdiction. This argument ultimately failed.

The Court found that each jurisdiction had taken steps to prevent potential defendants from dissolving for the purposes of avoiding a lawsuit. This behaviour is not supported by the principles of private international law, particularly where both jurisdictions have taken steps to prevent it. In this case, the Defendant was unable to escape liability on the basis that neither jurisdiction expressly provided for the dissolved California corporation to be sued in Ontario; it was enough that each stated that the corporation had the capacity to be sued in general.

While under the law of either jurisdiction, the net result would have been the same, it is worth noting that California law was ultimately applied in this case.

In the context of private international law, procedural matters will be decided on the basis of the law of the jurisdiction in which the proceeding takes place, while substantive matters will be decided on the basis of the applicable foreign legislation.

In this situation, the California corporation’s governing legislation applied to determine the substantive matter of whether it had legal status to be sued. The significance of this is that, where the legislation in two jurisdictions is not in sync, that of the foreign corporation will be the deciding authority on a substantive legal issue.

Fortunately for Cirque du Soleil, California’s Code provides for dissolved corporations to be sued, and this decision establishes that such an action is not limited to the California courts.

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