Legal Blog

Punitive Damages & Fiduciary Duty

6071376 Canada Inc. v. 3966305 Canada Inc. 2019 Ont SCJ

The corporate defendant obtained a 40% investment from the plaintiffs for a down payment involved in the purchase of a commercial property. The corporate defendant was wholly owned by its principal. The defendants incorporated another corporation solely for the purpose of holding title to the property and 3 years later caused that corporation to sell the property for a profit. The corporate defendant used the sale proceeds to buy a 2^nd property and ultimately sold that property for an even bigger profit. All the while, the principal was actively lying to the plaintiffs, who believed that the first property was still being held in trust for them. The judge held that the corporate defendant breached its fiduciary duty and that the principal was liable as the corporate defendant’s alter ego; the principal directed, and caused, the misappropriation of the trust funds for his own purpose. The judge calculated the damages to be (i) 40% of the profit on the sale of the first property (ii) 40% of the net income produced while owning the first property, and (iii) punitive damages of $200,000 resulting from the outrageous and reprehensible activities of the defendants. The judge did not award 40% of the profit on the sale of the 2^nd property; rather, he merely awarded prejudgment interest on the damages relating to the first property. He did so because he found that the parties’ original agreement did not reach beyond the plaintiffs’ participation as a 40% owner in the first property.

Written by Jonathan Speigel, the founding partner of Speigel Nichols Fox LLP, leads the litigation and construction practices.