December 02, 2016

PEI Court Addresses Common Law Vehicle Ownership and Piercing the Corporate Veil

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It is relatively commonplace for corporations to allow their corporate officers to also use the company vehicle for personal use. In MacInnis v Rayner & Raylink, 2016 PESC 40, the PEI Supreme Court addressed the circumstances in which a court might pierce the corporate veil to find that the individual corporate officer is the true owner of the vehicle. In the case of a motor vehicle accident, such a finding may impose personal liability on the corporate officer.

Background

Rayner was a shareholder and the sole officer of Raylink Ltd (“Raylink”). Rayner used a vehicle purchased by and registered to Raylink for the personal use of his family. The divided use of the vehicle was properly reflected in the corporate tax returns and financial statements. There was also evidence that the vehicle was not only driven by Rayner’s family but also the employees of Raylink.

In October 2010, Rayner’s son was driving the vehicle with consent when he was involved in a collision with MacInnis’ motorcycle. MacInnis was seriously injured in the collision and brought a claim against Raylink as registered owner of the vehicle, Rayner’s son as the driver, and also against Rayner alleging that he was the co-owner of the vehicle at common law. Rayner brought a motion for summary judgment on the basis that he was neither the owner nor the driver and so had no personal liability. MacInnis argued that this was an appropriate case to pierce the corporate veil and find Rayner an owner of the vehicle at common law.

The Decision

The motions judge first addressed the issue of ownership. Raylink’s name appeared both on the contract of purchase and sale and on the ownership registration. There is a presumption that arises from interpretation of the statute and ensuing case law that the registered owner is the true owner. The court accepted that common law indicators of ownership may be used to rebut that presumption including: participation in negotiating the purchase of the vehicle; co-signing the agreement of purchase and sale; co-signing the conditional sales agreement; making most of the monthly instalment payments; insuring the car; using it regularly; driving it; and renewing the license plate sticker. However, in this case the evidence was that Raylink had purchased the vehicle, its employees drove the vehicle and the company’s ownership was reflected in the financial statements and corporate tax returns. Accordingly, the presumption of ownership had not been rebutted and Raylink was found to be the true owner.

The court also confirmed that piercing the corporate veil should be a rare remedy applicable only when the corporation has been used for a fraudulent or improper purpose. The judge did not accept MacInnis’ argument that this test was met by allowing Rayner’s son to drive the vehicle when he was not an employee and that doing so was contrary to the best interests of the corporation. It was not, on its own, enough to pierce the corporate veil just because the vehicle was being used for a personal purpose at the time of the collision. The motion for summary judgment was granted.

Lessons for Insurers

Each case depends on its facts, but courts will usually respect the registered corporate owner (the policy-holder) as the true owner of a vehicle. Evidence of other common law indicators may demonstrate that another person is the true owner, in which case liability and coverage issues may arise. Corporate officers that register their personal vehicles in the name of the company but substantially treat the vehicle as their own and without proper corporate documentation run the risk that they will be found to be the true owner at common law.

Piercing the corporate veil continues to be a rare remedy applicable only where there is evidence of the corporation being used for a fraudulent or improper purpose. This principle is equally applicable to sole shareholder corporations.

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PEI Court Addresses Common Law Vehicle Ownership and Piercing the Corporate Veil

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