NOV Downhole Fails to Pierce the Corporate Veil

In NOV Downhole Eurasia Limited v. TLL Oilfield Consulting Ltd., 2016 FC 685, NOV appealed an Order of Prothonotary Milczynski (acting in her capacity as a case management judge) dismissing NOV’s motion to (i) amend their Statement of Claim which sought to add three individuals as defendants in the underlying patent infringement action, and (ii) relieving NOV of their implied undertaking not to rely on documents produced in the underlying proceeding to commence a separate proceeding against those three individuals. The underlying infringement action relates to Canadian Patent No. 2,255,065 directed to a downhole flow pulsing apparatus used in oil and gas exploration and extraction.

The three individuals sought to be added as Defendants had designed and developed an allegedly infringing Jigger tool. All three individuals are named as inventors on the two competing patent applications, which they had assigned to the Defendants.

Before Prothonotary Milczynski, NOV asserted that the three individuals were personally profiting from the transfer of monies from the Defendants through excessive payments of salaries, dividends and royalties, and that consequently the Defendants would be judgment proof if NOV was successful in the underlying action. Prothonotary Milczynski found insufficient facts of piercing of the corporate veil and concluded that the three individuals did not act beyond the scope of corporate and normal business activities or that they intended to convert the Defendants into shell corporations. With respect to the non-employee individual, she concluded insufficient facts of infringement were pleaded.

Justice Bell dismissed NOV’s appeal. Following Merck v. Apotex, the Court is to give significant deference to the discretionary order of a prothonotary, and such orders should not to be disturbed unless the questions raised are vital to the final issue of the case, or unless the order is based upon a wrong legal principle or upon a misapprehension of the facts. Justice Bell emphasized that Prothonotary Milczynski applied the correct test and adequately addressed the issued raised in NOV’s motion when she stated in her Order that:

• “There are insufficient material facts pleaded to support the relief sought that they … should be personally, and jointly and severally liable with the corporate defendants for any infringement found of the 065 Patent.”

• […] there is no basis to relieve the Plaintiffs of their obligations under the implied undertaken rule. The main concern appears to be whether the corporate defendants are judgment proof, but the satisfaction of any judgment is no basis to add parties to a proceeding or to permit the Plaintiffs to rely on documents produced in the within proceeding to commence an action in the provincial courts for unjust enrichment.

A copy of the Order and Reasons by Justice Bell can be found here.