Decisions

CAT File No. P-2585-41
MoT File No. EMS 046475

CIVIL AVIATION TRIBUNAL

BETWEEN:

Minister of Transport, Applicant

- and -

Stage Air South Ltd., Respondent

LEGISLATION:
Aeronautics Act, R.S.C. 1985, c. A-2, s. 7.7
Canadian Aviation Regulations, SOR/96-433, s. 605.84(1)c) and 605.86(1)b)


Review Determination
Keith Edward Green


Decision: April 22, 2003

The charges pursuant to paragraphs 605.84(1)(c) and 605.86(1)(b) of the Canadian Aviation Regulations are dismissed and the sanctions are cancelled.

A review hearing on the above matter was held Wednesday, January 22, 2003 at 10:00 hours, at the Penticton Lakeside Resort in Penticton, British Columbia.

BACKGROUND

The Notice of Assessment of Monetary Penalty dated July 3, 2002 alleged that Stage Air South Ltd. contravened paragraphs 605.84(1)(c) and 605.86(1)(b) of the Canadian Aviation Regulations (CARs) in that specified aircraft were permitted to be flown for a given period of time without having complied to the requirements of two mandatory airworthiness directives and two separate propeller inspection frequencies as provisioned in Schedule "A" of the Notice of Assessment of Monetary Penalty.

At the commencement of the hearing, the Minister raised a motion to amend the Notice of Assessment of Monetary Penalty with the intent to change the name of the Respondent from "Stage Air South Ltd. (previously doing business as Stage Air Ltd.)" to "Southern Skies Aviation Ltd. (previously doing business as Stage Air South Ltd. (previously doing business as Stage Air Ltd.))".

After having considered the motion and its implication to the pending case, the Tribunal Member, Mr. Keith Green, decided the Minister was to present the motion in writing to the Tribunal Registry, thereby allowing the Respondent time to reply to the Minister's motion as it was ascertained the Respondent had not received the motion prior to the hearing.

Having dealt with the Minister's motion, the Respondent raised a new motion requesting that the Tribunal dismiss the Minister's allegations completely. The premise being the Minister was attempting to sanction a legal company that had no connection with the alleged violations in question, other than through association of the corporate principals.

The Tribunal Member decided to treat the Respondent's motion in a like fashion to that of the Minister, and ordered the Respondent to provide the Tribunal with a written document explaining in detail the Respondent's motion for dismissal.

1. Applicant's Motion to Amend the Notice of Monetary Penalty by Changing the Alleged Contravener from "Stage Air South Ltd." to "Southern Skies Aviation Ltd."

The Tribunal Registry, after having received the Minister's motion to address the Notice of Assessment of Monetary Penalty, and having received the Respondent's argument against the motion, provided all the relevant documents to the Tribunal Member for consideration. Based on the facts as delineated within those documents, the Tribunal Member decided not to allow the Minister's motion to amend the Notice of Assessment of Monetary Penalty to change the name of the Respondent from "Stage Air South Ltd. (previously doing business as Stage Air Ltd.)" to "Southern Skies Aviation Ltd. (previously doing business as Stage Air South Ltd. (previously doing business as Stage Air Ltd.))".

Reasons:

1) Stage Air Ltd. (Incorporated in the province of British Columbia on September 30, 1985), having air operator certificate No. 6351, was the company responsible for the three aircraft involved in the alleged violations.

2) Stage Air South Ltd. was incorporated in British Columbia on August 13, 2001 and was issued air operator certificate No. 10105 on December 7, 2001.

3) The alleged violations occurred between July 3, 2001 and October 25, 2001, at which time aircraft C-GCJO was leased by Stage Air Ltd. from Adios Airlines Ltd. Additionally, aircraft C-GXTN and C-GHJC were the registered property of Stage Air Ltd. until August 31, 2001 when they were sold to Adios Airlines Ltd.

4) The above noted aircraft certificates of registration were transferred on December 13, 2001, November 8, 2002, and December 9, 2001 respectively to Stage Air South Ltd.

5) The aircraft, as noted above, were not involved with Stage Air South Ltd. at the time of the alleged violations.

6) The certificates of incorporation for Stage Air Ltd. and for Stage Air South Ltd. denote both corporations to be two separate and distinct legal entities.

7) "Agreement of Fact" stating the aircraft (as noted in the Notice of Assessment of Monetary Penalty) "were under legal custody and control of Stage Air Ltd."

8) On November 7, 2002, Stage Air South Ltd. applied for and was granted a name change to Southern Skies Aviation Ltd.

If a company is formed for the express purpose of doing a wrongful or unlawful act, or, if when formed, those in control expressly direct a wrongful thing to be done, the individuals as well as the company are responsible to those to whom liability is legally owed.[1] As a result, it is extremely unusual for the courts to lift the corporate veil, unless there is substantiating evidence of any wilful wrongdoing. Given the above, to allow the Minister's motion would lift the corporate veil for which there is no substantiating evidence or justification.

The Applicant's motion is denied.

2. Respondent's Motion to Dismiss the Case

It is quite evident from the information provided to the Tribunal and as partially referenced above, the Minister inadvertently pursued the wrong corporation, regardless that the corporate principals remain virtually one and the same. At the time of the alleged violation, Stage Air Ltd. was the legal and responsible entity for the operation of the cited aircraft. Stage Air Ltd. and Adios Airlines Ltd. remain to this date, legal companies within the Province of British Columbia. It is therefore the conclusion of the Tribunal that the Applicant's attempt to sanction a distinct and separate corporation from the one accountable at the time the alleged violations occurred is grievous and injudicious.

The Respondent's motion is granted.

DETERMINATION

The charges pursuant to paragraphs 605.84(1)(c) and 605.86(1)(b) of the CARs are dismissed, and the sanctions are cancelled.

Keith Edward Green
Member
Civil Aviation Tribunal


[1] Clarkson Co. Ltd. v. Zhelka, [1967] 20.R.565 (H.C.)


Appeal decision
Allister W. Ogilvie, E. David Dover, Sandra Lloyd


Decision: February 5, 2004

The Appeal is dismissed. We confirm the Member's Review Determination that the allegations are dismissed and the sanctions cancelled.

An appeal hearing on the above entitled matter proceeded by written submission with the agreement of both parties.

BACKGROUND

The Notice of Assessment of Monetary Penalty in this matter dated July 3, 2002 (the Notice) was addressed to the Respondent, Stage Air South Ltd. (previously doing business as Stage Air Ltd.). It alleged that three aircraft under the legal custody and control of Stage Air South Ltd. (the Aircraft) were permitted to take off on several occasions while airworthiness directives or propellor inspections were overdue.

At the Review Hearing of this matter, the Appellant Minister of Transport (the Minister) made a motion to amend the Notice to show a change in the name of the alleged contravenor to Southern Skies Aviation Ltd. Also at that hearing, the Respondent made a motion to dismiss the allegations against it, on the basis that the Minister had charged the wrong corporate entity.

Upon his review of the matter, Tribunal Member Mr. Keith Green (the Member) denied the Minister's motion to amend and granted the Respondent's motion to dismiss. The Member agreed with the Respondent's view that the Minister had charged the wrong corporate entity at review. Accordingly, he determined that the charges were dismissed and the sanctions cancelled. The Minister appealed the determination.

THE APPEAL

The Minister cited seven grounds in the Notice of Appeal. However, the focus of the Minister's appeal submissions was that the Member erred in allowing the Respondent to avoid prosecution when that Respondent was essentially the same corporation as that which was alleged to have committed the contraventions. The Minister sought an order to amend the Notice by changing the name of the alleged contravenor to Southern Skies Aviation Ltd. (previously doing business as Stage Air South Ltd., previously doing business as Stage Air Ltd.).

EVIDENCE

The parties had entered into an Agreement of Fact wherein they agreed that:

  1. The dates during which the alleged offences occurred were between on or about July 3, 2001 and on or about October 25, 2001;
  2. The location was at or near Penticton, British Columbia;
  3. At that time, the Aircraft were under the legal custody and control of Stage Air Ltd., of Penticton, British Columbia;
  4. Stage Air Ltd. was a Part VII operator;
  5. On July 3, 2002 the Aircraft were under the legal custody and control of Stage Air South Ltd. of Penticton, British Columbia; and
  6. On July 3, 2002, Stage Air South Ltd. was a Part VII operator.

A January 29, 2003 company search of Adios Airlines Ltd. showed:

  1. Incorporation Date: 25 Mar., 1993
  2. Last Annual Report Date: 25 Mar., 2002
  3. President: Douglas A. Kenyon

Secretary: Larry D. Kenyon

A company search of Stage Air Ltd. dated October 22, 2002 showed:

  1. Incorporation Date: 30 Sep., 1985
  2. Last Annual Report Date: 30 Sep., 2001
  3. Director: David Hindson

President: Douglas Kenyon

Secretary: Larry Kenyon

Air Operator Certificate number 6351 was last approved for Stage Air Ltd. on June 28, 2000 but the original certification date was October 10, 1996.

A company search of Stage Air South Ltd. dated October 22, 2002 showed:

  1. Incorporation Date: 13 Aug., 2001
  2. Last Annual Report Date: 13 Aug., 2002
  3. President: Douglas Allan Kenyon

Secretary: Larry Dale Kenyon

Air Operator Certificate number 10105 was approved for Stage Air South Ltd. on December 7, 2001, the same date as the certification date. We note that this approval was given some weeks after the alleged contraventions took place.

A company search of Southern Skies Aviation Ltd. dated January 9, 2003 showed the following:

  1. Incorporation Date: 13 Aug., 200 ; (last digit missing from the document)
  2. Last Annual Report Date: 13 Aug., 2002
  3. Previous Name: Stage Air South Ltd., Date : 07 Nov., 2002
  4. Director: Mark Holmes

President: Douglas Allan Kenyon

Secretary: Larry Dale Kenyon

Air Operator Certificate number 10105 was approved for Southern Skies Aviation Ltd. on November 8, 2002, replacing the certificate approved on December 7, 2001 (for Stage Air South Ltd.).

The Aircraft were under the legal custody and control of Stage Air Ltd. at the time of the alleged contraventions. The same Aircraft were under the legal custody and control of Stage Air South Ltd. by the next year.

In summary, documents filed by the parties show that Stage Air Ltd., Stage Air South Ltd., Southern Skies Aviation Ltd. and Adios Airlines Ltd. had the same president and secretary, Douglas and Larry Kenyon. However, David Hindson was shown as a director of Stage Air Ltd. only; and Mark Holmes was shown as a director of Southern Skies Aviation only.

Further, Stage Air South Ltd. was issued an Air Operator Certificate in December, 2001 that was separate and distinct from Stage Air Ltd.'s Air Operator certificate. Each certificate had a distinct certification number.

APPEAL SUBMISSIONS

The Minister submitted in his appeal that the four companies are mere agents of the controlling incorporators, Douglas and Larry Kenyon. The Minister further submitted that there are three occasions where the corporate veil may be lifted:

  1. where adherence to the Salomon principle (that the legal persona created by incorporation is an entity distinct from its shareholders, and a company is not an alias for its owner) would be flagrantly opposed to justice;
  2. where a company is formed for the express purpose of doing a wrongful act or, if when formed, those in control expressly direct a wrongful act; and
  3. where the company is the mere agent of a controlling incorporator.

The Minister further submitted that the Member erred by:

  1. not considering whether adherence to the Salomon principle in this case would be flagrantly opposed to justice, because the actuators of the alleged contraventions will not be reached and subject to the compliance measures assessed by the Minister; and
  2. not considering whether the companies were "mere agents" of the controlling incorporators, Douglas and Larry Kenyon. The Minister submitted that the evidence supports a finding, on a balance of probabilities, that the companies were "mere agents" or "alter egos" of Douglas and Larry Kenyon.

Finally, the Minister submitted that this is an appropriate case to lift the corporate veil and determine that Stage Air Ltd., Stage Air South Ltd. and Southern Skies Aviation Ltd. are in substance exactly the same company.

In reply, among other things, the Respondent submitted that if the actual contravenors are to be punished, and if the companies involved were mere agents of the controlling incorporators, then it should be the controlling incorporators who should be the subject of the Notice of Assessment of Monetary Penalty, and not the companies themselves. The Respondent also submitted that the Minister had not provided any evidence that the incorporation of Stage Air South Ltd. occurred for the purpose of doing a wrongful or unlawful act or that its principals had directed that a wrongful thing be done.

LAW

Counsel for the Appellant relied on two cases in this appeal: Clarkson Co. Ltd. v Zhelka et al,

64 D.L.R. (2d) 457 (Ont. High Court) and Colbert v. Canada (F.C.T.D.), [1994] F.C.J. No. 1171.

In Clarkson Co. Ltd. v Zhelka et al at page 470 the Court said:

The cases in which the Courts ... have seen fit to disregard the corporate entity or personality, and instead to consider the economic realities behind the legal facade, fall within a narrow compass...The only principle laid down is that in the leading case of Salomon v. Salomon & Co., Ltd. [1897] A.C. 22; and in general such principle has been rigidly applied. Briefly stated, it is that the legal persona created by incorporation is an entity distinct from its shareholders and directors and that even in the case of a one-man company, the company is not an alias for the owner.

The exceptions would appear to represent refusals to apply the logic of the Salomon case where it would be flagrantly opposed to justice...

If a company is formed for the express purpose of doing a wrongful or unlawful act, or, if when formed, those in control expressly direct a wrongful thing to be done, the individuals as well as the company are responsible to those to whom liability is legally owed.

In such cases, or where the company is the mere agent of a controlling corporator, it may be said that the company is a sham, cloak or alter ego, but otherwise it should not be so termed.

Whether an individual has constituted the company his agent is a question of fact in each case...

In Colbert v Canada (F.C.T.D.) the Court said that:

...it has also been recognized that the relationship between a company and a shareholder can be such to constitute the company as an agent of the shareholder...whether an express or implied agency relationship has been established is a question of fact to be determined on the specific circumstances of each case...

DISCUSSION

The company with legal custody and control of the Aircraft at the time of the alleged contraventions was Stage Air Ltd. The case law indicates that the onus is on the Minister to provide sufficient evidence to support the "lifting of the corporate veil", that is, to show that someone other than Stage Air Ltd. should be held responsible for the actions of Stage Air Ltd.

The corporate searches show that although Douglas and Larry Kenyon were consistently shown as directors of all the companies involved, there were some differences in directorship between Stage Air Ltd., Stage Air South Ltd., and Southern Skies Aviation Ltd. Stage Air South and Southern Skies Aviation Ltd. held the same Air Operator Certificate, but this was different from that held by Stage Air Ltd., and was approved by Transport Canada after the alleged contraventions took place. The aircraft were under the legal custody and control of Stage Air Ltd. at the time of the alleged contraventions in 2001, but were under the legal custody and control of Stage Air South Ltd. by July 2002.

Both parties had made a number of additional factual allegations in their submissions to the Member in support of their motions. The Appellant's written submissions noted that all the facts referred to in the Appeal were taken from the submissions of the Minister dated January 29, 2003 and attached exhibits, and from the submissions of the Minister dated February 5, 2003. Examples of the additional factual allegations, contained in the various submissions of the parties, concerned personnel, aircraft transfers, and ownership of the companies involved. Given the differences in position of the parties, we cannot consider these allegations as reliable evidence, since the parties did not agree on these facts and they are not supported by sworn affidavit, viva voce or documentary evidence.

There is no evidence that any company was formed for the express purpose of doing a wrongful act. There is insufficient evidence to find that it would be flagrantly opposed to justice to refuse to allow Stage Air South Ltd. or Southern Skies Aviation Ltd. to be charged for the alleged contraventions made by Stage Air Ltd. Nor do we find there is sufficient evidence to make a finding that Stage Air South Ltd. or Southern Skies Aviation Ltd. are mere agents of controlling incorporators.

In summary, in our view there is insufficient evidence before us to find that the corporate veil should be lifted in this case in order to determine that Stage Air Ltd., Stage Air South Ltd., and Southern Skies Aviation Ltd. are in substance exactly the same company. The evidence shows that the Minister ought to have directed the Notice to Stage Air Ltd.

DETERMINATION

The Appeal is dismissed. We confirm the Member's Review Determination that the allegations are dismissed and the sanctions cancelled.

Reasons for Appeal Decision by:

Sandra K. Lloyd, Member

Concurred:

Allister Ogilvie, Vice-Chairperson
E. David Dover, Member