Ridley Australia Decision Leaves Corporate Veil in Place

February 19, 2006

Regional Senior Justice Winkler of the Ontario Superior Court recently dismissed a proposed class action against an Australian feed manufacturer, Ridley Corporation Limited (Ridley Australia) on a motion to strike the claim on the basis that the allegations as pleaded disclosed no cause of action.

The representative plaintiff, Bill Sauer, on behalf of a proposed class of approximately one hundred thousand Canadian cattle farmers, seeks certification of an action against Ridley Australia, its Canadian subsidiary Ridley Inc. (Ridley Canada) and the federal Crown. The plaintiff seeks damages in excess of $20 billion for economic losses arising from the international border closures to Canadian beef and cattle following a mad cow diagnosis in a cow in Alberta in 2003.

The plaintiff alleges that the defendants knew or ought to have known that the inclusion of certain ingredients in cattle feed (namely, rendered cow remains) could cause mad cow disease, resulting in catastrophic consequences for the Canadian cattle industry. The plaintiff also claims that the federal government was negligent in failing to ban the impugned ingredients sooner. The plaintiff claims that Ridley Canada was negligent and breached its duty to warn on the basis that it allegedly manufactured and distributed the feed that infected the Alberta cow. In addition, the plaintiff sought to pierce the corporate veil in order to hold Ridley Australia liable for the conduct of Ridley Canada, alleging that at all material times Ridley Australia was the alter ego of its subsidiary and that Ridley Canada did not operate independently.

Prior to the service of a Statement of Defence, all of the defendants moved to strike all or part of the claims against them on the grounds that they disclosed no reasonable cause of action. Ridley Australia also advanced jurisdictional arguments.

At the hearing of the motion, the federal government argued that Canadian law does not recognize a duty of care by the government regarding legislative policy decision-making. Ridley Canada argued that Canadian law does not impose a duty of care on it in respect of the plaintiff's claimed economic losses.

Justice Winkler, applying the test enunciated by the Supreme Court in Hunt v. Carey Canada Inc., [1990] 2 S.C.R. 959, dismissed Ridley Canada and the government's motion, finding that it was not "plain and obvious" at this stage that they owed no duty of care to the proposed class members.

Ridley Australia also moved to strike the claim, arguing that service in Australia was improper and that the Ontario Court lacked jurisdiction. Alternatively, Ridley Australia sought to strike the claim as disclosing no reasonable cause of action, there being insufficient grounds pled to pierce the corporate veil.

Justice Winkler agreed with Ridley Australia that the Statement of Claim failed to disclose a reasonable cause of action against it. He found that the plaintiff's claim against Ridley Australia was based purely on the theory that Ridley Canada was its alter ego, noting that there were no allegations that Ridley Australia carried on business in Canada or conducted business directly with the plaintiff. Justice Winkler concluded that the allegations in the Statement of Claim regarding Ridley Australia's relationship with its subsidiary were merely bald conclusions unsupported by material facts. Justice Winkler also found that the plaintiff failed to plead any material facts demonstrating conduct "akin to fraud," which, as held by recent Ontario Court of Appeal decisions, is required to pierce the corporate veil between related companies.

Significantly, Justice Winkler struck the claim against Ridley Australia without granting leave to amend. He noted that since the plaintiff had failed to state a claim against Ridley Australia, despite five amendments to his pleading, fairness dictated that leave to amend be denied.

Thus, the Court reaffirmed the principles recently enunciated by the Ontario Court of Appeal that conduct akin to fraud is required to pierce the corporate veil. Even in the context of class actions, where the representative plaintiff is representing the interests of tens of thousands of potential class members, the Court will properly dismiss the claim where, as in this case, there is simply no recognized cause of action in law.

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