J.S.M. Corp. (Ontario) Ltd. v. Brick Furniture Warehouse Ltd. et al., (2008) 234 O.A.C. 59 (CA)

• Judge: Doherty, Armstrong and Lang, JJ.A.
• Court: Court of Appeal (Ontario)
• Case Date: September 17, 2007
• Jurisdiction: Ontario
• Citations: (2008), 234 O.A.C. 59 (CA);2008 ONCA 183

JSM Corp. v. Brick Furniture (2008), 234 O.A.C. 59 (CA)

MLB headnote and full text

Temp. Cite: [2008] O.A.C. TBEd. MR.069

J.S.M. Corporation (Ontario) Ltd. (plaintiff/respondent) v. The Brick Furniture Warehouse Ltd., the Brick Furniture Warehouse (Windsor) Ltd., the Brick Warehouse Corporation Landex Investment Ltd. , the Brick Warehouse LP , Wayne Tischer, Paul Richards and William Comrie (defendants/appellants)

(C45137; 2008 ONCA 183)

Indexed As: J.S.M. Corp. (Ontario) Ltd. v. Brick Furniture Warehouse Ltd. et al.

Ontario Court of Appeal

Doherty, Armstrong and Lang, JJ.A.

March 14, 2008.

Summary:

The plaintiff owned a large commercial property known as Gateway Plaza. In 1986, it agreed to lease 29,000 square feet of the Gateway Plaza to the Brick Furniture Warehouse Ltd. (Brick Ltd.). The lease was for a ten-year term with two five-year renewals available at the option of Brick Ltd. Brick Ltd. was one of a number of corporate entities that together made up the Brick enterprise. In 1987, Brick Ltd. assigned its interest as a tenant in the lease to Brick Warehouse (Windsor) Ltd. (Brick Windsor). The plaintiff gave its written consent to the assignment. Brick Windsor sublet the leased premises to another Brick company, Brick Warehouse Ltd. The plaintiff was notified of the sublease but its consent was not required because they were affiliated companies. Brick Warehouse later agreed to assign its interest in the sublease to Brick Corp. The plaintiff provided written consent to the assignment. When the sublease was assigned to Brick Corp., it did not contain any early termination provisions. In 1996, the Brick enterprise exercised the first of the two five-year options available under the lease. In February 2000, the Brick enterprise notified the plaintiff that it would cease to operate its store at the Gateway Plaza. The Brick store in the Gateway Plaza closed at the end of March 2000, some eighteen months before the expiry of the lease. The lease required that the tenant operate a store throughout the term of the lease. The plaintiff sued Brick Ltd. and Brick Windsor. Both companies had direct obligations to the plaintiff under the lease and a related assignment. Their liability to the plaintiff was not challenged. The plaintiff also claimed against Brick Corp. Brick Corp. took the position that it had no obligation to the plaintiff. From the corporate perspective, the litigation was all about Brick Corp.'s liability for the rent owing to the plaintiff under the lease.

The Ontario Superior Court, in a decision reported at [2006] O.T.C. 209, found Brick Ltd. and Brick Windsor liable for the unpaid rent under the lease and the assignment agreement. Further, the court found that there was a contractual relationship between the plaintiff, Brick Windsor and Brick Corp. but that the terms of the contract did not give the plaintiff any right to recover the unpaid rent from Brick Corp. The court gave the plaintiff "complainant" status under the oppression remedy provisions of the Alberta Business Corporations Act and the Canada Business Corporations Act. The court held that the corporate affairs of Brick Windsor and Brick Corp. had been carried out in a manner that was oppressive to the plaintiff's interests. The court further concluded that the appropriate remedy for the oppressive conduct was an order requiring Brick Corp. to pay damages to the plaintiff equal to the rent owing under the unexpired portion of the lease. Brick enterprise appealed.

The Ontario Court of Appeal dismissed the appeal.

Company Law - Topic 9783

Actions against corporations and directors - Action for oppressive conduct - Persons entitled - The plaintiff owned a large commercial property known as Gateway Plaza - In 1986, it agreed to lease 29,000 square feet to the Brick Furniture Warehouse Ltd. (Brick Ltd.) - The lease was for a ten-year term with two five-year renewals available at the option of Brick Ltd. - Brick Ltd. was one of a number of corporate entities that together made up the Brick enterprise - In 1987, Brick Ltd. assigned its interest as a tenant in the lease to Brick Warehouse (Windsor) Ltd. (Brick Windsor) - The plaintiff gave its written consent to the assignment - Brick Windsor sublet the leased premises to another Brick company, Brick Warehouse Ltd. - The plaintiff was notified of the sublease but its consent was not required because they were affiliated companies - Brick Warehouse later agreed to assign its interest in the sublease to Brick Corp. - The plaintiff provided written consent to the assignment - When the sublease was assigned to Brick Corp., it did not contain any early termination provisions - In 1996, the Brick enterprise exercised the first of the two five-year options available under the lease - In February 2000, the Brick enterprise notified the plaintiff that it would cease to operate its store at the Gateway Plaza - The Brick store in the Gateway Plaza closed at the end of March 2000, some eighteen months before the expiry of the lease - The lease required that the tenant operate a store throughout the term of the lease - The plaintiff sued Brick Ltd. and Brick Windsor - Their liability to the plaintiff was not challenged - The plaintiff also claimed against Brick Corp. - Brick Corp. took the position that it had no obligation to the plaintiff - The trial judge found that that the corporate affairs of Brick Windsor and Brick Corp. had been carried out in a manner that was oppressive to the plaintiff's interests - The appropriate remedy was an order requiring Brick Corp. to pay damages to the plaintiff equal to the rent owing under the unexpired portion of the lease - The Ontario Court of Appeal disagreed - The reasonable expectations of parties to commercial agreements negotiated at arms length had to be those reasonable expectations that found expression in the agreements negotiated by the parties - The oppression remedy was not intended to give a creditor after-the-fact protection against risks that the creditor assumed when he entered into an agreement with a corporation - The position of a creditor who could, but did not, protect itself against an eventuality from which he later sought relief under the oppression remedy, was much different than the position of a creditor who found his interest as a creditor compromised by unlawful and internal corporate maneuvers against which the creditor could not effectively protect itself - In the factual circumstances of this case, the oppression remedy was not available to the plaintiff - See paragraphs 58 to 67.

Landlord and Tenant - Topic 5003

Assignment of lease - General principles - Effect of assignment - The plaintiff owned a large commercial property known as Gateway Plaza - In 1986, it agreed to lease 29,000 square feet to the Brick Furniture Warehouse Ltd. (Brick Ltd.) - The lease was for a ten-year term with two five-year renewals available at the option of Brick Ltd. - Brick Ltd. was one of a number of corporate entities that together made up the Brick enterprise - In 1987, Brick Ltd. assigned its interest as a tenant in the lease to Brick Warehouse (Windsor) Ltd. (Brick Windsor) - The plaintiff gave its written consent to the assignment - Brick Windsor sublet the leased premises to another Brick company, Brick Warehouse Ltd. - The plaintiff was notified of the sublease but its consent was not required because they were affiliated companies - Brick Warehouse later agreed to assign its interest in the sublease to Brick Corp. - The plaintiff provided written consent to the assignment - When the sublease was assigned to Brick Corp., it did not contain any early termination provisions - In 1996, the Brick enterprise exercised the first of the two five-year options available under the lease - In February 2000, the Brick enterprise notified the plaintiff that it would cease to operate its store at the Gateway Plaza - The Brick store in the Gateway Plaza closed at the end of March 2000, some eighteen months before the expiry of the lease - The lease required that the tenant operate a store throughout the term of the lease - The plaintiff sued Brick Ltd. and Brick Windsor - Their liability to the plaintiff was not challenged - The plaintiff also claimed against Brick Corp. - Brick Corp. took the position that it had no obligation to the plaintiff - The trial judge found that there was a contractual relationship between the plaintiff, Brick Windsor and Brick Corp. but that the terms of the contract did not give the plaintiff any right to recover the unpaid rent from Brick Corp. - The Ontario Court of Appeal agreed that there was a contractual relationship between the parties - However, the court held that the consent to the assignment of the sublease was expressly made conditional upon ongoing compliance with the obligations under the sublease - Those obligations included payment of the rent and occupation of the premises throughout the term of the lease and the renewal of the lease - The obligation of continued compliance with the sublease had to be directed at Brick Corp., the assignee of the sub-tenant and the operator of the business on the leased premises - The plaintiff was entitled to take action when Brick Corp. broke its promise to the plaintiff, abandoned the premises and stopped paying rent - Brick Corp.'s liability under the contract with the plaintiff was the amount of the unpaid rent - See paragraphs 45 to 57.

Cases Noticed:

Jedfro Investments (U.S.A.) Ltd. et al. v. Jacyk Estate et al. (2007), 369 N.R. 329; 232 O.A.C. 385 (S.C.C.), refd to. [para. 60].

SCI Systems Inc. v. Gornitzki Thompson & Little Co. et al. (1997), 29 O.T.C. 148; 147 D.L.R.(4th) 300 (Gen. Div.), varied (1998), 110 O.A.C. 160 (Div. Ct.), refd to. [para. 66].

Authors and Works Noticed:

Farley, James, Chouinard, Roger J. and Daube, Nicholas, Expectations of Fairness: The State of Oppression Remedy in Canada Today (2007), 33 Adv. Q. 261, generally [para. 59].

Koehnen, M., Oppression and Related Remedies (2006) pp. 88 to 93 [para. 66].

McGuinness, Kevin Patrick, The Law and Practice of Canadian Business Corporations (1999), para. 9.247 [para. 65].

Counsel:

H. James Marin, for the appellants;

Christopher D. Bredt and Aaron A. Blumenfeld, for the respondent.

This appeal was heard on September 17, 2007, by Doherty, Armstrong and Lang, JJ.A., of the Ontario Court of Appeal. The following judgment of the Court of Appeal was delivered by Doherty, J.A., on March 14, 2008.