TNG Acquisition Inc. (Bankrupt), Re,

• Jurisdiction: Ontario
• Judge: Laskin, Goudge and Gillese, JJ.A.
• Court: Court of Appeal (Ontario)
• Citation: 2011 ONCA 535,(2011), 283 O.A.C. 168 (CA)
• Date: 31 May 2011

TNG Acquisition Inc. (Bankrupt), Re (2011), 283 O.A.C. 168 (CA)

MLB headnote and full text

Temp. Cite: [2011] O.A.C. TBEd. AU.004

In the Matter of the Bankruptcy of TNG Acquisition Inc., (successor estate of NexInnovations Inc., a bankrupt) of the City of Mississauga, in the Province of Ontario

(C52939; 2011 ONCA 535)

Indexed As: TNG Acquisition Inc. (Bankrupt), Re

Ontario Court of Appeal

Laskin, Goudge and Gillese, JJ.A.

July 28, 2011.

Summary:

EDS Canada Corp. sublet premises to NexInnovations (Nex). Nex obtained creditor protection under the Companies' Creditors Arrangement Act (the initial order). The initial order gave Nex the right to repudiate leases. Nex advised EDS by letter that it was repudiating the lease, effective March 21, 2008, and included an acknowledgment to be signed by EDS and returned to Nex. EDS never acknowledged, accepted or returned the acknowledgment. Nex abandoned the premises on March 21, 2008. EDS was unable to find a new tenant. Nex's restructuring efforts failed. Nex declared bankruptcy. EDS submitted a proof of claim to the bankruptcy trustee for its "unrecoverable expenses" during the entire term of the lease up to January 30, 2012. On September 18, 2008, the trustee issued a disclaimer of the lease which brought the lease to an end and terminated all rights and obligations for the payment of rent for the remainder of the lease. The trustee obtained a sale approval and vesting order which, inter alia, annulled the Nex bankruptcy order and transferred all Nex's assets to TNG Acquisition Inc. TNG was then adjudged a bankrupt. All claims formerly against Nex became claims against TNG and all Nex assets became available to satisfy the claims. The trustee disallowed the bulk of EDS's claim. EDS's successor (Hewlett-Packard (Canada) Co. (HP)) moved to have the disallowance set aside and the claim declared to be valid.

The Ontario Superior Court, in a decision reported [2010] O.T.C. Uned. 6119, dismissed the motion. HP appealed.

The Ontario Court of Appeal dismissed the appeal.

Bankruptcy - Topic 2109

Proposals - General principles - Disclaimer of lease - EDS Canada Corp. sublet premises to NexInnovations (Nex) - Nex obtained creditor protection under the Companies' Creditors Arrangement Act (CCAA) - That initial order gave Nex the right to repudiate leases - Nex advised EDS by letter that it was repudiating the lease, effective March 21, 2008, and included an acknowledgment to be signed and returned to Nex - EDS never acknowledged, accepted or returned the acknowledgment - Nex abandoned the premises on March 21, 2008 - Nex's restructuring efforts failed - Nex declared bankruptcy - EDS submitted a proof of claim to the bankruptcy trustee for its "unrecoverable expenses" during the entire term of the lease up to January 30, 2012 - On September 18, 2008, the trustee issued a disclaimer of the lease which brought the lease to an end and terminated all rights and obligations for the payment of rent for the remainder of the lease - The trustee obtained a sale approval and vesting order which, inter alia, annulled the Nex bankruptcy order and transferred all Nex's assets to TNG Acquisition Inc. - TNG was adjudged bankrupt - All claims formerly against Nex became claims against TNG - The trustee disallowed the bulk of EDS's claim - EDS's successor (HP)) moved to have the disallowance set aside and the claim declared to be valid - The Ontario Court of Appeal affirmed the motion's dismissal - EDS accepted rent payments after the repudiation letter - Repudiation and termination were distinct concepts - To terminate a lease was to bring it to an end - Repudiation conferred on the innocent party (i.e., EDS) a right of election to, inter alia, treat the lease as at an end, thereby relieving the party of further performance, though not relieving the repudiating party from its liabilities for breach - It was particularly important in CCAA proceedings for the landlord to promptly advise the tenant which option it intended to pursue - EDS never acknowledged or accepted the repudiation - Moreover, the mechanisms provided by the initial order for dealing with repudiation were not used - The parties' relationship remained that of landlord and tenant at the date of the bankruptcy and the lease was susceptible to statutory disclaimer by the trustee.

Contracts - Topic 3666

Performance or breach - Repudiation - What constitutes acceptance of repudiation - [See Bankruptcy - Topic 2109 ].

Contracts - Topic 4505

Discharge and termination - When party may treat contract as discharged - [See Bankruptcy - Topic 2109 ].

Landlord and Tenant - Topic 2781

The lease - Repudiation by tenant - General - [See Bankruptcy - Topic 2109 ].

Landlord and Tenant - Topic 6525

Termination, forfeiture and reentry - Termination - Acts constituting - [See Bankruptcy - Topic 2109 ].

Cases Noticed:

Place Concorde East Limited Partnership et al. v. Shelter Corp. of Canada Ltd. et al., [2003] O.T.C. 1144; 43 B.L.R.(3d) 54 (Sup. Ct.), varied (2006), 211 O.A.C. 141; 270 D.L.R.(4th) 181 (C.A.), refd to. [para. 25].

Highway Properties Ltd. v. Kelly, Douglas & Co., [1971] S.C.R. 562, refd to. [para. 26].

Williams v. Good Call Productions Ltd., [2003] O.T.C. 406; 35 B.L.R. 249 (Sup. Ct.), refd to. [para. 35].

Howard v. Pickford Tool Co., [1951] 1 K.B. 417 (C.A.), refd to. [para. 35].

Counsel:

Kenneth D. Kraft, for the appellant, Hewlett-Packard (Canada) Co., formerly EDS Canada Inc.;

David S. Ward, for the trustee in bankruptcy, A. Farber & Partners Inc.

This appeal was heard on May 31, 2011, by Laskin, Goudge and Gillese, JJ.A., of the Ontario Court of Appeal. Gillese, J.A., released the following judgment for the court on July 28, 2011.