The facts were fairly straightforward. A shell company leased space and operated a furniture store. The shell then vacated the premises before the lease ended. Obviously the shell was liable for unpaid rent but the shell, being a shell, was judgment proof.
The parent of the shell was a solid company with considerable assets.
The landlord sought relief against the parent on the basis of the oppression remedy. At trial the Court found the landlord was a proper applicant and granted a remedy, in effect, that the parent was liable for the shell's debts.
Such a finding risked a wholesale elimination of separate corporate personality. The Court of Appeal found that, where a contractual relationship governed, broadly speaking, oppression did not act to rewrite the terms of that relationship.
The astute reader will note how consistent this finding is with Justice Silcoff's recent decision in the Quebec Superior Court regarding the Bell bondholders.
The Court of Appeal in J.S.M. writes:
[65] I would adopt, as applicable to the facts of this case, the observations of Kevin P. McGuiness, The Law and Practice of Canadian Business Corporations (Toronto: Buttersworth, 1999) at para. 9.247:
In most cases it would seem reasonable to hold the creditors of the corporation are limited to the normal remedies for a breach of contract (including any available security or personal guarantee) should the corporation default in performance, for it cannot have been intended that the oppression remedy would be available where a creditor failed to protect himself or herself adequately against the inherent risks of doing business with a corporation. While acts of oppression may entail a breach of contract, or the commission of some tortious or similar wrong, against the complainant, it is doubtful that the oppression remedy was intended to be a substitute for an ordinary right of action in contract – or tort for that matter. Where the sole complaint is that of a breach of contract, then a contract action should be pursued. Insofar as the contract deals with a specific matter, it seems only natural to conclude that it sets out exhaustively the underlying intentions, understandings and expectations of the parties. While many – perhaps all – breaches of a contract can be characterized as oppressive to the injured party, and while many – perhaps all – forms of tortious injury may be said to be unfairly prejudicial, the legislature clearly cannot have intended for the oppression provisions to serve as a panacea for all manner of legal wrongs, or to make the remedies created under the statute for genuine cases of oppression or unfair prejudice a substitute for the normal legal and equitable remedies that are available to aggrieved parties. Where a simple breach of contract, or comparable legal wrong has occurred, it is not appropriate for the court to invoke the oppression provisions of the Act merely because the party in breach is a corporation. ...
[66] I stress Mr. McGuiness' observation that the oppression remedy is 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 can, but does not, protect itself against an eventuality from which he later seeks relief under the oppression remedy, is much different than the position of a creditor who finds his interest as a creditor compromised by unlawful and internal corporate manoeuvres against which the creditor cannot effectively protect itself. In the latter case, there is much more room for relief under the oppression provisions than in the former case. See S.C.I. Systems, Inc. v. Gornitzki Thompson & Little Co. Ltd. (1997), 147 D.L.R. (4th) 300 (Gen. Div.) var'd on other grounds (1998), 110 O.A.C. 160 (Div. Ct.); see also M. Koehnen, Oppression and Related Remedies (Toronto: Carswell, 2006) at pp. 88-93.
[67] In the factual circumstances of this case, J.S.M.'s claim against Brick Corp. could succeed only if properly founded in contract or tort. There was no basis for an assertion by J.S.M. that its reasonable expectations were other than those it negotiated in the various relevant agreements. If, contrary to my holding above, those agreements provided no remedy against Brick Corp., it was not for the court, through the invocation of the oppression remedy, to correct J.S.M.'s failure to bind Brick Corp. to the lease.
James Morton
1100 - 5255 Yonge Street
Toronto, Ontario
M2N 6P4
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