Corporate Veil Pierced to Hold Directors Liable for Private Copying Levies

In Canadian Private Copying Collective v First Choice Recording Media Inc (2008 FC 636), Mr. Justice Hugesson of the Federal Court found three companies and their two directors liable for penalties of more than $30m because they failed to pay the private copying levy on blank CDs. Section 82 of the Copyright Act requires manufacturers and importers of blank audio recording media to pay a levy to the Canadian Private Copying Collective (CPCC). The current rate is $0.21 per CD-R or CD-RW. At the trial, the defendants offered no defence. Three of the defendant companies were found to have imported blank CDs and resold them in Canada without paying the levies, which amounted to more than $6m. Justice Hugesson declined to hold a fourth company liable because it had not imported CDs, but only purchased them from one of the other companies and then resold them in Canada. The CPCC argued that the fourth company was merely acting as the agent of the importer, but was unable to prove this. The Court found that the importers were aware of the existence of the levies and that their directors actively attempted to deceive the CPCC as to the amounts owing. Each was the sole director of two of the defendant companies. At the time of trial, two of the companies had been dissolved without making any provision for the payment of the levies. The other two had filed an assignment in bankruptcy. Citing authorities that support piercing the corporate veil in cases involving fraud or improper conduct, Justice Hugesson found that the conduct of the directors was sufficiently improper to justify piercing the veil to hold them personally and jointly liable for the levies and interest totaling more than seven million dollars. Justice Hugesson further ordered that the defendant corporations pay the maximum penalty of five times the amount of the levies, as authorized by subsection 88(2) of the Copyright Act, based on their demonstrated intention to avoid their obligations, and considering the need for deterrence. For the full decision, see: http://decisions.fct-cf.gc.ca/en/2008/2008fc636/2008fc636.html Summary by: Tom Feather