Tran et al. v. Bloorston Farms Ltd.
[Indexed as: Tran v. Bloorston Farms Ltd.]
Ontario Reports
Court of Appeal for Ontario
Benotto, Zarnett and Thorburn JJ.A.
July 6, 2020
151 O.R. (3d) 563 | 2020 ONCA 440
Case Summary
Corporations — Rule in Foss v. Harbottle — Sole shareholder of corporation being assigned lease for corporation to operate restaurant on premises — Landlord demanding increased rent from shareholder as tenant based on discovery that premises were larger than square footage specified in lease — Shareholder refusing and landlord terminating tenancy, causing restaurant to cease business — With no wrong committed against corporation, rule in Foss v. Harbottle did not bar shareholder's claim for diminution in share value resulting from breach of lease.
The plaintiffs were a corporation and its sole shareholder, S. In 2010 S was assigned a commercial lease and her company began operating a restaurant on the premises. In 2014, the defendant purchased the building in which the leased premises were located and discovered that the premises were larger than what was specified in the lease. The defendant demanded an increase in the minimum rent based on the increased space, and demanded increased additional rent based on a reallocation of the building's property taxes. Within a month the defendant terminated the tenancy based on S's failure to pay the increased amounts. The locks on the premises were changed and the company's restaurant business ceased operations. The plaintiffs commenced an action for damages for breach of the lease. The defendant counterclaimed against S for losses arising from her failure to pay the increased rental amounts. On a motion by the defendant for summary judgment, the motion judge concluded that nothing in the 2010 lease permitted the defendant to adjust the minimum rent based on a recalculation of the square footage of the leased premises. The judge noted that the lease gave the defendant as landlord the right, acting reasonably, to re-estimate a tenant's share of expenses, but that the defendant had not acted reasonably. Accordingly, the judge found that the defendant had wrongfully terminated the lease, as a result of which S's shares in her company became worthless. S was awarded damages of $5,088 for a deposit held by the defendant, plus $140,614, for the lost share value. The defendant's counterclaim was dismissed. The defendant appealed.
Held, the appeal should be dismissed. [page564]
The rule in Foss v. Harbottle did not bar the claim for diminution in share value. The rule stipulated that a shareholder of a corporation did not have a personal cause of action for a wrong done to the corporation. No wrong was committed against the corporation in this case and as such the corporation had no cause of action. Therefore, the rule did not bar the claim. That conclusion followed from the wording of the rule and was consistent with the rationale for the rule to respect the separate legal identity of the corporation. Permitting such a claim did not risk a multiplicity of proceedings because the corporation could not bring an action. The claim for diminution in share value resulted from a relationship with the wrongdoer independent of any relationship the corporation had with the wrongdoer.
The damages for diminution in share value were reasonably foreseeable. The lease specified that the premises were for use as a restaurant. The defendant and its predecessor were aware of an did not object to the corporation's occupation of the premises. The fact that the diminished property was S's stake in the corporation operating the restaurant did not take the loss outside the type that would naturally and ordinarily be expected to occur from the breach of the commercial lease. The motion judge did not overlook or misapprehend evidence in quantifying damages.
The motion judge did not make any palpable or overriding error in finding that the defendant breached the lease. The defendant's arguments attacked the judge's interpretation of commercial agreements, which was subject to a deferential standard of review absent extricable legal error. No such error was shown. The arguments also attacked the motion judge's findings of fact and mixed fact and law, which were also entitled to deference.
Cases referred to
BCE Inc. v. 1976 Debentureholders, [2008] 3 S.C.R. 560, [2008] S.C.J. No. 37, 2008 SCC 69, 52 B.LR. (4th) 1, 301 D.L.R. (4th) 80, 71 C.P.R. (4th) 303, 383 N.R. 119; Borrelli v. Chan, [2018] O.J. No. 1436, 2018 ONSC 1429, 58 C.B.R. (6th) 1 (S.C.J.); Chevron Corp. v. Yaiguaje, [2015] 3 S.C.R. 69, [2015] S.C.J. No. 42, 2015 SCC 42, 335 O.A.C. 201, 22 C.C.L.T. (4th) 1, 73 C.P.C. (7th) 1, 38 B.L.R. (5th) 171, 388 D.L.R. (4th) 253, 474 N.R. 1; Foss v. Harbottle (1843), 67 E.R. 189, 2 Hare 461 (U.K. (H.L.)); George Fischer (Great Britain) Ltd v. Multi Construction Ltd. (1994), [1995] B.C.C. 310 (C.A.); Harris v. Leikin Group Inc. (2014), 120 O.R. (3d) 508, [2014] O.J. No. 2914, 2014 ONCA 479, 98 E.T.R. (3d) 81, 374 D.L.R. (4th) 452, 321 O.A.C. 181, 29 B.L.R. (5th) 1 (C.A.); Hercules Management Ltd. v. Ernst & Young, 1997 345 (SCC), [1997] 2 S.C.R. 165, [1997] S.C.J. No. 51, 146 D.L.R. (4th) 577, 211 N.R. 352, [1997] 8 W.W.R. 80, 115 Man. R. (2d) 241, 31 B.L.R. (2d) 147, 35 C.C.L.T. (2d) 115; Hersey v. Hersey, [2016] O.J. No. 3256, 2016 ONCA 494, 87 R.F.L. (7th) 272 (C.A.); Hunter-Rutland Inc. v. Huntsville (Town), [2015] O.J. No. 2515, 2015 ONCA 353 (C.A.); Hryniak v. Mauldin, [2014] 1 S.C.R. 87, [2014] S.C.J. No. 7, 2014 SCC 7, 314 O.A.C. 1, 453 N.R. 51, 95 E.T.R. (3d) 1, 12 C.C.E.L. (4th) 1, 27 C.L.R. (4th) 1, 21 B.L.R. (5th) 248, 46 C.P.C. (7th) 217, 37 R.P.R. (5th) 1, 366 D.L.R. (4th) 641; Johnson v. Gore Wood & Co. (No. 1) (2000), [2001] B.C.C. 820 (U.K.H.L); Malata Group (HK) Ltd. v. Jung (2008), 89 O.R. (3d) 36, [2008] O.J. No. 519, 2008 ONCA 111, 290 D.L.R. (4th) 343, 233 O.A.C. 199, 44 B.L.R. (4th) 177, 2008 SOACQ para. 10,017, 2008 CCSG para. 51,062, 2008 BCLG para. 78,625, 2008 OCLG para. 51,438, 2008 CCLR para. 200,782, 2008 CSLR para. 900-246, 2008 ACLG para. 79,201 (C.A.); Meditrust Healthcare Inc. v. Shoppers Drug Mart (2002), 2002 41710 (ON CA), 61 O.R. (3d) 786, [2002] O.J. No. 3891, 220 D.L.R. (4th) 611, 165 O.A.C. 147, 28 B.L.R. (3d) 163 (C.A.); Midland Resources Holding Ltd. v. Shtaif (2017), 135 O.R. (3d) 481, [2017] O.J. No. 1978, 2017 ONCA 320, 69 B.L.R. (5th) 1 (C.A.); Quadrangle Group LLC v. Canada (Attorney General) (2015), 125 O.R. (3d) 144, [2015] O.J. No. 1185, 2015 ONSC 1521, 39 B.L.R. (5th) 321 (S.C.J.), leave to appeal refused, [2015] O.J. No. 6157, 2015 ONSC 7346 (Div. Ct.); Rea v. Wildeboer (2015), 126 O.R. (3d) 178, [2015] O.J. No. 2651, 2015 ONCA 373, 335 O.A.C. 161, 384 D.L.R. (4th) 747, 37 B.L.R. (5th) 101 (C.A.); Robak Industries Ltd. v. [page565] Gardner, [2007] B.C.J. No. 174, 2007 BCCA 61, 236 B.C.A.C. 237, 65 B.C.L.R. (4th) 62, 28 B.L.R. (4th) 1, 47 C.C.L.T. (3d) 203 (C.A.); SFC Litigation Trust (Trusteee of) v. Chan (2019), 147 O.R. (3d) 145, [2019] O.J. No. 3594, 2019 ONCA 525 (C.A.); Saramia Crescent General Partner Inc. v. Delco Wire and Cable Ltd., [2018] O.J. No. 3012, 2018 ONCA 519 (C.A.); Sattva Capital v. Creston Moly, [2014] 2 S.C.R. 633, [2014] S.C.J. No. 53, 2014 SCC 53, 373 D.L.R. (4th) 393, [2014] 9 W.W.R. 427, 59 B.C.L.R. (5th) 1, 461 N.R. 335, 25 B.L.R. (5th) 1, 358 B.C.A.C. 1, 614 W.A.C. 1; Tran v. Bloorston Farms Ltd., [2017] O.J. No. 827, 2017 ONSC 864 (S.C.J.); Tran v. Bloorston Farms Ltd., [2019] O.J. No. 6517, 2019 ONSC 4639 (S.C.J.); Walsh v. T.R.A. Co., [2015] N.J. No. 63, 2015 NLTD(G) 27, 38 B.L.R. (5th) 256, 363 Nfld. & P.E.I.R. 302 (S.C.T.D.); Yaiguaje v. Chevron Corp. (2018), 141 O.R. (3d) 1, [2017] O.J. No. 1978, 2018 ONCA 472, 69 B.L.R. (5th) 1 (C.A.)
Statutes referred to
Business Corporations Act, R.S.O. 1990, c. B.16, ss. 28(1), 41, 92 [as am.], 246
Authorities referred to
Lee Suet Lin, Joyce, "Barring Recovery for Diminution in Value of Shares on the Reflective Loss Principle" (2007), 66:3 Cambridge L.J. 537
APPEAL
APPEAL from the judgment of Chalmers J., [2019] O.J. No. 6517, 2019 ONSC 4639 (S.C.J.).
Mark A. Ross and Eric Brousseau, for appellant.
Evan L. Tingley, for respondents.
The judgment of the court was delivered by
ZARNETT J.A.: —
Introduction
[1] The rule in Foss v. Harbottle (1843), 67 E.R. 189, 2 Hare 461 (U.K. (H.L.)) prevents shareholders from suing for a loss in the value of their shares brought about by a wrong done to the corporation. The rule, which is well-entrenched in Canadian law, is a consequence of the separate legal personality of the corporation. Just as shareholders (subject to limited exceptions) cannot be sued for acts, debts, defaults or obligations of the corporation, only the corporation has a cause of action for wrongs done to it.[^1]
[2] The primary issue in this appeal is whether the rule should have been applied to deny the claim of the respondent, Sang Thi [page566] Tran ("Sang"), for the diminution in the value of her shares in 1835068 Ontario Ltd. ("183"), a corporation she solely owned. The shares lost value because 183 was unable to carry on its restaurant business. It could not carry on that business because Sang's lease for the restaurant's premises was terminated by the appellant, Bloorston Farms Ltd. ("Bloorston").
[3] As I explain below, the wrong in this case was not done to the corporation, but to the shareholder personally. Only Sang was a tenant under the lease and only she had a cause of action for its wrongful termination. In these circumstances, neither the rule in Foss v. Harbottle nor its rationale applied. The motion judge did not err, as Bloorston contends, in allowing Sang's claim for diminution in share value. Nor did the motion judge err, as Bloorston also contends, in the quantification of that diminution or in finding that Bloorston had breached the lease.
[4] I would therefore dismiss the appeal.
Background
[5] In 2006, Sang's sister entered into a lease with the then-owner of the building at 252 Carlton Street, Toronto. The lease was for premises on the ground floor of the building and contemplated that the premises would be used as a restaurant. It required payment of "Minimum Rent" and "Additional Rent" for the tenant's share of taxes, utilities and services to the building. The lease was to expire on October 31, 2016, subject to a five-year renewal option.
[6] In 2010, Sang's sister assigned the lease to Sang. In an agreement with the then-landlord dated December 1, 2010 (the "2010 agreement"), Sang was recognized as the "new tenant". The 2010 agreement made amendments to the amount of Minimum Rent and also specified the square footage of the leased premises (1,120 square feet). The other terms and conditions of the lease remained unchanged.
[7] From December 1, 2010 to April 1, 2014, Sang's corporation, 183, of which Sang was the sole shareholder, operated a restaurant called "Gingers" on the leased premises. The motion judge found that Sang never assigned the lease to 183. In other words, Sang always remained the tenant under the lease.
[8] Bloorston became Sang's landlord when, on March 6, 2014, it purchased the building in which the leased premises were located. The next day, Bloorston e-mailed an architect's certificate to Sang, showing that the leased premises were larger than what the 2010 agreement specified.
[9] On April 1, 2014, Bloorston demanded the payment of increased amounts of Minimum Rent and Additional Rent. The demand for increased Minimum Rent was based on the larger area [page567] in the architect's certificate. The demand for increased Additional Rent was based on Bloorston having increased the allocation of the building's property taxes to the leased premises (from 26.77 per cent to 43.59 per cent).
[10] On April 3, 2014, Bloorston's lawyer wrote to Sang advising that payment of the additional amounts was due by April 15, 2014, failing which Bloorston would take the position that Sang was in default of the lease.
[11] The same day, Sang wrote to Bloorston through her lawyer to dispute the changes to the Minimum Rent and Additional Rent. She relied on the amount of Minimum Rent specified in the 2010 agreement and took the position that the increased allocation of property taxes was unreasonable given the relationship of the area of the leased premises to that of the building. The letter stated that Sang would continue to pay the Minimum Rent and Additional Rent she had been paying.
[12] Although Bloorston received and cashed a cheque representing payment of April's Minimum Rent and Additional Rent calculated in accordance with past practice, Bloorston terminated Sang's tenancy on April 25, 2014 for her failure to pay the increased amounts it had demanded. The locks on the premises were changed, and other than being allowed a brief period to retrieve property from the premises, Sang was denied the benefit of the premises for the balance of the term of the lease.
[13] As a result, 183's restaurant business ceased to operate.
The Action
[14] Claiming that the termination of her lease was wrongful, Sang sued Bloorston for the return of her deposit and for damages arising from Bloorston's breach of the lease. 183 was later added as a plaintiff. Bloorston counterclaimed against Sang for lost rent and other losses related to Sang's failure to pay the increased rental amounts.
[15] In December 2016, Bloorston brought a motion for summary judgment to dismiss the action, which came before Lederer J. Although no specific disposition of the claim by 183 appears to have been made at that time, the reasons of Lederer J. proceed on the basis that 183 had no cause of action against Bloorston because it was not the tenant under the lease. Lederer J. refused to dismiss Sang's claim, giving her the opportunity to move to amend her claim to seek damages for the diminution in the value of her shares in 183: Tran v. Bloorston Farms Ltd., [2017] O.J. No. 827, 2017 ONSC 864 (S.C.J.).
[16] On May 12, 2017, Lederer J. granted Sang leave to amend the statement of claim and dismissed the action against 183. After [page568] an exchange of expert reports about the amount of the damages sought by Sang, Bloorston again moved for summary judgment.
The Motion Judge's Decision
[17] The motion judge granted summary judgment in favour of Sang and dismissed Bloorston's counterclaim.[^2]
[18] The motion judge rejected Bloorston's argument that it was entitled to the additional amounts it had demanded. He concluded that nothing in the 2010 agreement permitted Bloorston to adjust the Minimum Rent based on a recalculation of the square footage of the leased premises. Accordingly, the motion judge found that the Minimum Rent was set in the 2010 agreement and that the demand for increased amounts was improper. He noted that prior to April 2014, the parties had operated on the shared assumption, giving rise to an estoppel by convention, that the size of the leased premises was the square footage specified in the 2010 agreement.
[19] With respect to Additional Rent, the motion judge noted that the lease gave the landlord the right, "acting reasonably", to re-estimate the tenant's share of relevant expenses. He found that Bloorston had not acted reasonably, and in any event, it was not entitled to change the method of allocation of property taxes that its predecessor had used. The motion judge therefore concluded that Bloorston's demand for increased Additional Rent was also unjustified.
[20] The motion judge also rejected the argument that Sang had breached the lease by assigning it to 183 or by allowing 183 to use the leased premises. He found that there had been no assignment, and that the prior landlord and Bloorston were aware of 183's involvement and had made no objection.
[21] Accordingly, the motion judge found that Bloorston had wrongfully terminated the lease when it locked Sang out of the premises.
[22] The next issue was whether Sang could claim for the loss of value of her shares. The motion judge found that the termination of the lease caused the restaurant to close, as a result of which Sang's shares in 183 became worthless. He rejected Bloorston's argument that Sang was not entitled to damages for that loss based on the rule in Foss v. Harbottle. He held that there was an exception to that rule when the company suffers a loss but has no cause [page569] of action to recover the loss; in such circumstances the shareholder may sue for the loss of the value of the shares. The motion judge referred to Meditrust Healthcare Inc. v. Shoppers Drug Mart (2002), 2002 41710 (ON CA), 61 O.R. (3d) 786, [2002] O.J. No. 3891, 220 D.L.R. (4th) 611 (C.A.), which quoted a passage from the House of Lords decision in Johnson v. Gore Wood & Co. (No. 1) (2000), [2001] B.C.C. 820 (U.K.H.L), discussed in greater detail below. He also noted that the exception was relied on by Newbould J. in refusing to strike a shareholder claim for diminution in share value as disclosing no reasonable cause of action: Quadrangle Group LLC v. Canada (Attorney General) (2015), 2015 ONSC 1521, 125 O.R. (3d) 144, [2015] O.J. No. 11852015 ONSC 1521, 39 B.L.R. (5th) 321 (S.C.J.), leave to appeal to Div. Ct. refused, [2015] O.J. No. 6157, 2015 ONSC 7346.
[23] The motion judge then turned to the quantification of damages. The point of contention was the treatment of a $137,227 sum which represented funds advanced to 183 by Sang's sister. Bloorston's expert took the position that this sum had to be deducted from the share value, reducing the share value to $3,387 at the time of the termination of the lease. The motion judge rejected that position, finding on the evidence of both Sang and Sang's sister that the advance was not a loan -- it bore no interest and was not repayable. The sum therefore formed part of the capital of 183 and was to be included when determining the value of 183's shares at the time of the termination of the lease.
[24] The motion judge awarded Sang damages of $145,702, made up of the lost share value ($140,614) and a deposit that Bloorston was holding ($5,088). He dismissed Bloorston's counterclaim.
Issues on Appeal
[25] Bloorston raises three grounds of appeal.
[26] First, it submits that the rule in Foss v. Harbottle is part of Ontario law and bars Sang's claim for diminution in share value. Bloorston further submits that the exception relied on by the motion judge has not been accepted as part of Ontario law, and, in any event, is not available to Sang on the facts because her claim for diminution of share value was not reasonably foreseeable.
[27] Second, Bloorston argues that the motion judge erred in failing to deduct the amount of Sang's sister's advance from the sum of damages, and in failing to reconcile conflicting evidence about whether the advance was a loan.
[28] Third, Bloorston submits that the motion judge erred in his determination that Bloorston was not entitled to claim the additional amounts it did, and that his reasons were inadequate to justify his conclusion that Bloorston breached the lease. [page570]
Analysis
(1) The claim for diminution in share value
(a) The rule in Foss v. Harbottle and its rationale
[29] The rule in Foss v. Harbottle is part of Ontario law. It has been firmly established by jurisprudence of the Supreme Court of Canada and of this court: Hercules Management Ltd. v. Ernst & Young, 1997 345 (SCC), [1997] 2 S.C.R. 165, [1997] S.C.J. No. 51, at para. 59; Meditrust, at para. 14. The point of central importance in this case is the extent or reach of the rule.
[30] The rule stipulates the following: a shareholder of a corporation -- even a controlling or sole shareholder -- does not have a personal cause of action for a wrong done to the corporation: Hercules Management, at para. 59; Meditrust, at paras. 1, 12, and 15.
[31] There are two reasons for the rule. First, the corporation is a separate legal entity. The corporation, and not its shareholders, is liable for the corporation's acts and defaults, and the corporation, not its shareholders, acquires causes of action when wrongs are committed against it. Second, the rule avoids a multiplicity of actions; without the rule, a shareholder would always be able to sue on the basis that a wrong done to the corporation, which caused harm to the corporation, indirectly harmed the shareholder: Hercules Management, at para. 59; Meditrust,at paras. 12-13.
[32] While the rule in Foss v. Harbottle prevents a shareholder from suing for any type of damage resulting from a wrong done to the corporation, it is frequently invoked when a shareholder attempts to recover for the diminution in value of his or her shares. Such claims offend the rule because a wrong done to the corporation that results in diminished share value does not ground a personal cause of action for the shareholder. The party with the cause of action for the wrong is the corporation. The loss in share value is simply reflective of the loss incurred by the corporation as a result of the wrong done to it, and would be remedied if the corporation took action to recover its loss from the wrongdoer. Both the wording of the rule, and its rationale, apply to bar such claims: Meditrust, at para. 42.
(b) The limit of the rule
[33] But the rule has a limit. It only provides "that shareholders cannot raise individual claims in respect of a wrong done to the corporation" (emphasis in original): Hercules, at para. 62. See, also, Robak Industries Ltd. v. Gardner, [2007] B.C.J. No. 174, 2007 BCCA 61, 28 B.L.R. (4th) 1 (C.A.), at para. 35: "There are good reasons for not allowing a shareholder to claim the loss in value of [page571] its shares where a wrong has been done to the company" (emphasis added). The rule in Foss v. Harbottle does not preclude an individual shareholder from pursuing a claim for harm done directly to her, assuming the shareholder can make out all the elements of her own cause of action: Meditrust, at paras. 16-17.
[34] The limited reach of the rule in Foss v. Harbottle is important in two different circumstances.
(i) When both the corporation and shareholder have causes of action
[35] The first circumstance is when the same or overlapping facts constitute actionable wrongs against both the corporation and shareholder. When that occurs, the limit on the rule operates to ensure that the shareholder is not deprived of his or her cause of action, even though the corporation also has a cause of action. As La Forest J. explained in Hercules Management, the "shareholder may have a personal cause of action even though the corporation may also have a separate and distinct cause of action": at para. 62. See, also, SFC Litigation Trust (Trusteee of) v. Chan (2019), 147 O.R. (3d) 145, [2019] O.J. No. 3594, 2019 ONCA 525 (C.A.), leave to appeal refused [2019] S.C.C.A. No. 314, at para. 86.
[36] Of course, when wrongs have been committed so that both the corporation and shareholder have causes of action, care must be taken to ensure that the shareholder's personal action is not really an action for a wrong done to the corporation (for which the corporation, and only the corporation, can sue). In other words, even when the shareholder has a personal claim, the rule in Foss v. Harbottle may apply to prevent the shareholder from going beyond that personal claim to recover for a wrong done to the company.
[37] When the same or overlapping facts constitute actionable wrongs against both the corporation and shareholder, a shareholder's claim for diminution in share value may or may not be permissible. Whether it is permissible in a particular case will depend on the nature of the wrong done to the shareholder, the nature of the wrong done to the corporation, and their respective causes of action. It is unnecessary in this case to opine on the precise contours of how the distinction is made other than to note that cases may fall on either side of the line.
[38] For example, when a corporate director is responsible for misrepresentations that induce the acquisition of shares, the shareholders may have a statutory and common law cause of action to sue the director for loss of share value due to the misrepresentations, even though the director making such misrepresentations may also have breached his duty to the corporation and thereby given the corporation its own cause of action against the director: [page572] see Borrelli v. Chan, [2018] O.J. No. 1436, 2018 ONSC 1429, 58 C.B.R. (6th) 1 (S.C.J.), at paras. 130-34; SFC Litigation Trust, at paras. 85-86, 131-32.
[39] In other cases, the mere fact that the shareholder has a personal claim has been held not to justify a claim for diminution in share value because the shareholder's loss has not flowed from her cause of action but from a wrong done to the corporation. In order to distinguish what a shareholder may claim from claims that are properly made only by the corporation, some courts have required that the shareholder's claim result from an "independent relationship" with the wrongdoer and be for an "independent loss" from that of the corporation to whom the wrong has been done: Robak Industries, at para. 38 (discussed in more detail below); Walsh v. T.R.A. Co., [2015] N.J. No. 63, 2015 NLTD(G) 27, 38 B.L.R. (5th) 256, 363 Nfld. & P.E.I.R. 302 (S.C.T.D.), at para. 32.
(ii) When only the shareholder has a cause of action
[40] The second circumstance where the limit on the rule is germane is the one applicable here. Unlike the situation envisaged by the rule, this case does not involve a shareholder suing for a wrong done to the corporation for which the corporation can sue. Similarly, this case is unlike the circumstances discussed in paras. 35 to 39, above (when the same or overlapping facts constitute actionable wrongs against both the corporation and shareholder and give rise to separate and distinct causes of action in each).
[41] Here, the corporation has no cause of action whatsoever. Only the shareholder, Sang, has a cause of action. Since the rule in Foss v. Harbottle applies only to prevent a shareholder from suing for a wrong done to the corporation, the question is whether the rule has any application when the corporation has no cause of action and the shareholder, who does have a cause of action, makes a claim for diminution in share value.
[42] Bloorston's argument is essentially that the rule applies because the claim is for diminution in share value, even though the predicate to the rule, a shareholder claim for a wrong done to the corporation, is absent. As I explain in the next sections, I do not accept that argument, which, if accepted, would expand the rule rather than respect its limits and its rationale.
(c) Claims for diminution in share value under the "second proposition" in Johnson
(i) The "second proposition" in Johnson
[43] The main source for the motion judge's holding that a claim for diminution in share value is permissible in this case is a [page573] statement of Lord Bingham in the House of Lords decision in Johnson. As mentioned, the motion judge referred to a passage from Meditrust that quoted this statement (which was also quoted in Quadrangle). The statement, which has come to be known as the "second proposition in Johnson", provides that a shareholder may claim for diminution in share value resulting from a corporation's loss when the wrong done is to the shareholder, who thus has a cause of action, and the corporation has no cause of action: at p. 838.
[44] It is this proposition that Bloorston argues is not part of Ontario law.
[45] To appreciate the second proposition in Johnson, it is important to consider it in the context of the three propositions set out in that case by Lord Bingham about the ability of a shareholder to sue for diminution in share value:
Where a company suffers loss caused by a breach of duty owed to it, only the company may sue in respect of that loss. No action lies at the suit of a shareholder suing in that capacity and no other to make good a diminution in the value of the shareholder's shareholding where that merely reflects the loss suffered by the company. A claim will not lie by a shareholder to make good a loss which would be made good if the company's assets were replenished through action against the party responsible for the loss, even if the company, acting through its constitutional organs, has declined or failed to make good that loss. . . .
Where a company suffers loss but has no cause of action to sue to recover that loss, the shareholder in the company may sue in respect of it (if the shareholder has a cause of action to do so), even though the loss is a diminution in the value of the shareholding. . . .
Where a company suffers loss caused by a breach of duty to it, and a shareholder suffers a loss separate and distinct from that suffered by the company caused by breach of a duty independently owed to the shareholder, each may sue to recover the loss caused to it by breach of the duty owed to it but neither may recover loss caused to the other by breach of the duty owed to that other. . . .
(Citations omitted)
[46] While it is the second proposition in Johnson that supports Sang's claim, it is pertinent to observe that the first and third propositions in Johnson are consistent with Ontario law. The first proposition, dealing with the situation where only the corporation has a cause of action, restates the rule in Foss v. Harbottle. The third proposition deals with the situation where both the shareholder and corporation have causes of action. It allows both to sue for their respective claims, but neither to sue for the other's claim. One can draw from thisthat, at least as far as the House of Lords was concerned, the second proposition fits consistently into a legal framework that is otherwise consistent with Ontario law. [page574]
[47] The second proposition in Johnson was partly derived from an earlier case, George Fischer (Great Britain) Ltd v. Multi Construction Ltd. (1994), [1995] B.C.C. 310 (C.A.), in which the facts bore a relevant similarity to those present here. In George Fischer, a holding company of several subsidiary companies entered into a contract for the defendant to build a warehouse for one of the subsidiary companies. The warehouse would also be used by the other subsidiaries for business operations. The defendant's negligence in constructing the warehouse caused the subsidiaries, which were not parties to the contract, loss in revenue. The holding company succeeded in its personal claim for the diminution in value of its shares in the subsidiaries because the contract was between the holding company and the defendant and not between the subsidiaries and the defendant: see also Joyce Lee Suet Lin, "Barring Recovery for Diminution in Value of Shares on the Reflective Loss Principle" (2007), 66:3 Cambridge L.J. 537 at p. 545.
(ii) Has the "second proposition" been rejected in Ontario?
[48] Bloorston submits that the second proposition in Johnson is not part of Ontario law because (i) it was "rejected" by this court in Meditrust; (ii) that rejection was not questioned in the decisions of this court that have followed Meditrust;[^3] and (iii) it was also rejected by the British Columbia Court of Appeal in Robak Industries.
[49] Bloorston therefore argues that the motion judge was wrong to give effect to this "rejected" proposition (which the motion judge treated as an "exception" to the rule in Foss v. Harbottle).
[50] I disagree with Bloorston's submission.
[51] Bloorston relies on para. 43 of Meditrust (the very passage cited by the motion judge and the court in Quadrangle), where Laskin J.A., writing for the court, stated:
Meditrust, nonetheless, submits that [the rule in Foss v. Harbottle] . . . should be reconsidered in the light of recent English case law. I think that submission is untenable for two reasons. First, Canadian appellate jurisprudence [page575] has consistently invoked Foss v. Harbottle to reject this kind of claim. Second, the most recent English authority, the House of Lords' decision in Johnson v. Gore Wood & Co., [2001] 1 All E.R. 481, does not support Meditrust's position. In Johnson, Lord Bingham admittedly put a gloss on the rule in Foss v. Harbottle when he [provided the second proposition above]. But, to rely on this proposition to claim the loss in the value of its shares, Meditrust must at least show that it has a cause of action and the subsidiaries do not. This, Meditrust has failed to do. Therefore, in my view, Meditrust cannot maintain its claim for damages resulting from the loss in the value of its shares in its subsidiaries.
[52] I do not read this passage as a rejection of the second proposition in Johnson for three reasons.
[53] First, Meditrust involved a shareholder (Meditrust) seeking to sue for the diminution in value of its shares in subsidiary companies due to losses suffered by the subsidiaries because of wrongs done to them. Accordingly, when Laskin J.A. stated that the rule in Foss v. Harbottle has been applied by Canadian appellate jurisprudence to "reject this kind of claim", he was referring to the kind of claim made in Meditrust -- where the alleged wrong was to the corporation (Meditrust's subsidiaries), and not to the shareholder (Meditrust itself). He was not referring to the kind of claim contemplated by the second proposition in Johnson (and present in this case) -- where the alleged wrong was to the shareholder, and not to the corporation.
[54] Second, if the second proposition from Johnson was being rejected in Meditrust, it would have been unnecessary for Laskin J.A. to explain, as he did, why on the facts of Meditrust the proposition did not apply, namely, that Meditrust was not a case where the shareholder had a cause of action and the corporation did not. As noted by Laskin J.A, ". . . Meditrust must at least show that it has a cause of action and the subsidiaries do not. This, Meditrust has failed to do": Meditrust, at para. 43.
[55] Third, the passage quoted followed statements by Laskin J.A. earlier in the decision about the limit of the rule in Foss v. Harbottle. Following Hercules Management, Laskin J.A. explicitly noted that the rule does not preclude a shareholder who has her own cause of action from suing for harm suffered by her: Meditrust, at paras. 16-17. These statements are more consistent with the second proposition in Johnson than with its rejection.
[56] None of the decisions of this court since Meditrust (referred to in footnote 3 of these reasons) suggest that Meditrust rejected the second proposition in Johnson. Indeed, only one of the decisions (Midland Resources) involved a shareholder suing for a wrong done to the shareholder in circumstances where the corporation had no cause of action for that wrong. In Midland [page576] Resources, this court held that the rule in Foss v. Harbottle did not apply in that circumstance: Midland Resources, at para. 120.
(iii) The decision in Robak Industries
[57] The appellant's reliance on Robak Industries is also misplaced. Robak Industries involved shareholders suing for wrongs done to the corporation as well as for personal wrongs: see paras. 7-9. It did not involve the circumstance contemplated by the second proposition in Johnson and present in this case. In upholding the striking of certain portions of the claim on the basis of the rule in Foss v. Harbottle, including the claim for diminution in the value of shares, it was pivotal to the court's reasoning that the allegations included alleged wrongs done to the corporation for which the corporation could sue.
[58] For example, Levine J.A. described the rule in Foss v. Harbottle as providing that "only the company, not individual shareholders, may sue for wrongs done to the company" (emphasis added): Robak Industries, at para. 4. She concluded that the chambers judge did not err in striking the appellants' claims as there was "no basis in the law to conclude that the alleged wrongs to Getty [the corporation]give rise to a cause of action on the part of either Mr. Lepinski or Robak [the shareholders], or permit Robak to claim as damages the loss of value in its shares of Getty": Robak Industries, at para. 5. In paraphrasing the chamber judge's analysis, Levine J.A. noted that "the diminution in the value of their shares of Getty was not an "independent loss" in respect of the allegations of wrongdoing to Getty. Any loss suffered from wrongs to Getty was for Getty to claim, and any loss in the value of Getty's shares was not an 'independent loss' but a loss suffered in common with all Getty shareholders" (emphasis supplied): Robak Industries, at para. 15.
[59] This reasoning was again underscored when Levine J.A. summarized her conclusions, at para. 38:
The appellants' arguments, based on the consideration of the rule in Foss v. Harbottle in other jurisdictions, does not reveal that the chambers judge made any error in striking out the portions of the Further Amended Statement of Claim . . . She applied binding Canadian law, which has been considered and affirmed in a persuasive judgment of the Ontario Court of Appeal in Meditrust. In both [Rogers v. Bank of Montreal, 1985 150 (BC SC), [1985] 5 W.W.R. 193(B.C.S.C.), affirmed 1986 847 (BC CA), [1987] 2 W.W.R. 364(B.C.C.A.)] and Meditrust, shareholders claimed losses in the value of their shares as the result of an alleged conspiracy against them involving wrongs done to the company, and in both cases the claims were dismissed. The chambers judge did not decide, contrary to the appellants' arguments, that a shareholder may never [emphasis in original] bring a claim for the diminution in the value of the shareholder's shares, but confirmed, by reference to [Hercules Management] and[Haig v. Bamford (1976), 1976 6 (SCC), [1977] 1 S.C.R. 466], that a shareholder may have a cause of action for loss in the value of [page577] shares where the shareholder has both an "independent relationship" with the wrongdoer and an "independent loss" from that of the company to whom the wrong has been done. She decided that in this case, the appellants had not shown that they have a cause of action for an "independent loss" in respect of wrongs done to Getty. I agree with her conclusion.
(Emphasis added)
[60] The shareholders' claims in Robak Industries for diminution in share value flowed from wrongs allegedly done to the corporation and were therefore for the corporation to claim. The shareholders had not alleged any proper basis to claim that loss -- asserted as a claim for diminution in share value -- personally. On those facts, the shareholders were wrong to assert that the second proposition in Johnson allowed them to claim diminution in share value. Any hesitation to accept Johnson as a statement of Canadian law in Robak Industries must be read in light of the facts there and the way it was sought to be used: see paras. 27-28. The second proposition had no application; the facts fell within the third proposition, requiring the court to carefully separate claims that belonged to the corporation from claims that could be asserted by the shareholders personally.
[61] The rationale expressed in Robak Industries as to why the shareholders could not claim diminution in share value (lack of both an independent relationship with the wrongdoer and a loss independent of the loss caused by the wrong to the company) does not foreclose a shareholder's claim in circumstances where the wrong done is only to the shareholder and the corporation has no cause of action. In those circumstances, there is both an independent relationship with the wrongdoer (hence the wrong done to the shareholder) and a loss that is independent of the loss to the corporation to whom the wrong was done (as there is no legal wrong done by the wrongdoer to the corporation).
(iv) Conclusion on the "second proposition"
[62] I therefore conclude that nothing in Meditrust nor this court's subsequent jurisprudence constitutes a rejection of the second proposition in Johnson or forecloses the claim that was advanced here. Nor do I view the decision in Robak Industries as warranting the rejection of the proposition in a case such as this one.
(d) A shareholder with a proper cause of action may sue a wrongdoer for diminution in share value when the corporation has no cause of action
[63] It is a matter of semantics whether the second proposition in Johnson is a "gloss on" the rule in Foss v. Harbottle, an "exception to" the rule, or simply a statement of a circumstance beyond [page578] the rule's application. The second proposition in Johnson should be treated as good law in Ontario. Where the wrong was not committed against the corporation and the corporation therefore has no cause of action, the rule in Foss v. Harbottle does not prevent a shareholder who has her own cause of action from suing for any damages properly recoverable under that cause of action, including, in appropriate cases, loss or diminution of share value.
[64] This conclusion is entailed by the wording of the rule which, to repeat, is premised on precluding a personal action by a shareholder for a wrong done to the corporation.
[65] It is also consistent with the rationale for the rule. When a shareholder sues because of a wrong done to her, and in the absence of a wrong to the corporation that gives the corporation a cause of action, allowing the shareholder's action for any properly recoverable damages respects the separate legal identity of the corporation. The shareholder is pursuing her own cause of action, not a cause of action that belongs to a separate legal person (the corporation). Moreover, a claim for loss of share value is a claim for damage to the shareholder's property (the shares), not a claim for anything that belongs to the corporation. Shares in a corporation are property of the shareholder, not of the corporation. As a general matter, the corporation is prohibited from owning its own shares: BCE Inc. v. 1976 Debentureholders, [2008] 3 S.C.R. 560, [2008] S.C.J. No. 37, 2008 SCC 69, at paras. 34-35; OBCA, ss. 28(1) and 41; Chevron Corp. v. Yaiguaje, [2015] 3 S.C.R. 69, 2015 SCC 42, at para. 95.
[66] Nor in permitting such a claim is there a risk of a multiplicity of proceedings as a result of the corporation and shareholder making the same claims. Where there has been a wrong to the shareholder, but not to the corporation such that the corporation has no cause of action, there can be no multiplicity of proceedings; the corporation cannot bring an action.
[67] Finally, in these circumstances, a claim for diminution in share value is not simply a claim for loss that is reflective of the loss suffered by the corporation (for which the corporation, and only the corporation, can sue): Meditrust, at para. 42. When the corporation has no cause of action, the shareholder cannot be seen as pursuing "a loss which would be made good if the company's assets were replenished through action [by the company] against the party responsible for the loss": Johnson, at p. 838. The claim for diminution in share value results from a relationship with the wrongdoer that is independent of any relationship the corporation had with the wrongdoer. For example, in this case, only Sang, and not 183, was in a contractual relationship with Bloorston. The loss [page579] is "independent" of any suffered by the corporation as a result of a legal wrong done to the corporation.
[68] Accordingly, the rule in Foss v. Harbottle does not preclude a claim for diminution of share value when the shareholder has her own cause of action because of a wrong done to her, and the corporation, which suffered a loss but not because of a legal wrong done to it, has no cause of action.
[69] This does not, of course, mean that in every such case damages for diminution in share value should be allowed. A claim for this head of damages is subject to all the same requirements of proof, causation, foreseeability, and quantification as a claim for any head of damages flowing from the wrong that grounds the shareholder's cause of action. In the section below, I address Bloorston's argument that this head of damages was not reasonably foreseeable. I then address its argument about quantification.
(2) Were damages for diminution in share value reasonably foreseeable?
[70] Bloorston submits that the motion judge should have rejected the claim for diminution in share value in this case because it was not a reasonably foreseeable consequence of the termination of Sang's lease. Bloorston also submits that the motion judge failed to make a finding on the reasonable foreseeability of Sang's damages.
[71] Damages for breach of a lease are reasonably foreseeable if "(i) in the 'usual course of things', they arise fairly, reasonably, and naturally as a result of the breach of contract; or (ii) they were within the reasonable contemplation of the parties at the time of contract": Saramia Crescent General Partner Inc. v. Delco Wire and Cable Ltd., [2018] O.J. No. 3012, 2018 ONCA 519 (C.A.), at para. 36.
[72] The lease in this case specified that the premises were for use as a restaurant. The original tenant under the lease was Sang's sister, who, like Sang, also operated a restaurant on the premises through a corporation. Additionally, the motion judge found that Bloorston and its predecessor were aware of and did not object to 183's occupation of the premises. Bloorston's demands for additional payments show that it was aware of the operation of a restaurant on the premises; indeed, the demands were addressed to Gingers, the name of the restaurant.
[73] The test under the first branch of remoteness is objective: Saramia, at para. 38. That a restaurant operating on leased premises would cease to operate if the lease were wrongly terminated was reasonably foreseeable. If the tenant benefitted from the continuation of the lease and the operation of the restaurant, loss from [page580] the inability to continue in operation would arise "in the usual course of things" from a breach of the lease.
[74] Bloorston does not argue that if Sang's property had been the restaurant business itself, that is, if she operated the restaurant directly as a sole proprietorship, the loss in value of that property would not have been a reasonably foreseeable consequence of the wrongful termination of the lease. Instead, Bloorston argues that the loss of share value was not reasonably foreseeable because it did not know that Sang owned the shares of the corporation that operated the restaurant.
[75] I do not accept that distinction in the circumstances here. The requirement of reasonable foreseeability refers to the type of loss suffered: Saramia, at para. 36. As explained in Saramia, at para. 39:
The inquiry is whether, as a general matter and objectively viewed, [the type of loss suffered] is a type of loss that foreseeably and naturally arises "according to the usual course of things" from the breach of a commercial lease. One of the factors that could be used to define the foreseeable and natural types of losses recoverable upon breach of contract is the objective bargain inherent in the contract. In a commercial lease, the tenant's bargain is the use of the premises for trade or commerce. . .
[76] The fact that it was Sang's shares in the restaurant business that lost value due to the premature unavailability of the premises is not a different type of loss for the purposes of the reasonable foreseeability analysis. The type of loss suffered was damage to Sang's property caused by the premature non-availability of the restaurant premises that she leased. The fact that the diminished property was Sang's stake in the corporation operating the restaurant does not take the loss outside of the type that would naturally and ordinarily be expected to occur from the breach of this commercial lease.
[77] Moreover, in this case, from the time of the lease, and from the time of the 2010 agreement, a corporation operated the restaurant. As the motion judge found, 183's occupation and use of the premises was known, and was not objected to. Bloorston would not be able to complain if Sang claimed losses for the discontinuance of the restaurant business she operated herself; that her interest was as a shareholder does not take the loss out of the type that would have been in the reasonable contemplation of the parties at the time of contracting.
[78] Although the motion judge did not use the words 'reasonably foreseeable', he did not award damages for a type of loss that was beyond those that were reasonably foreseeable. This is not a case where any alleged insufficiency of reasons in the court below [page581] prevents meaningful appellate review. I would not give effect to this ground of appeal.
(3) Quantification of damages
[79] Bloorston argues that the motion judge should have deducted the sum of $137,227 from the value of Sang's shares. It points to 183's financial statements and tax returns, which record this amount as a shareholder loan. It also points to a passage from Sang's sister's examination, which it says contains equivocal evidence about the terms on which the funds were advanced. It submits that the motion judge failed to deal with or reconcile this evidence with his finding that the amount was not a loan, or explain why, in light of the evidence, he nonetheless found Sang and her sister's evidence that the advance was not a loan to be credible. Finally, Bloorston submits that the motion judge's findings that the advance did not bear interest and was not repayable did not mean that it was not a loan.
[80] I would not give effect to these arguments. A motion judge's findings of fact and mixed fact and law on a motion for summary judgment are entitled to deference: Hryniak v. Mauldin, [2014] 1 S.C.R. 87, [2014] S.C.J. No. 7, 2014 SCC 7, at paras. 81-82. The motion judge clearly considered the issue of whether the advance was a loan owing to Sang's sister, and found that it was not based on evidence he considered credible from both Sang and her sister. He was not required to refer to all of the evidence in expressing his conclusion: Hersey v. Hersey, [2016] O.J. No. 3256, 2016 ONCA 494 (C.A.), at para. 13. There can be no suggestion that the motion judge overlooked or misapprehended the evidence. I also see no basis for the suggestion that even if the advance was not repayable as the motion judge found, it should still have been deducted in calculating shareholder value.
(4) The findings of breach of lease
[81] Bloorston makes a number of arguments about the motion judge's findings that its demands for increased Minimum Rent and Additional Rent were unjustified. It submits that the motion judge erred: in interpreting the lease and the 2010 agreement as providing for fixed amounts of Minimum Rent rather than amounts based on square footage; in finding that the parties were bound to the amount of square footage specified in the 2010 agreement or had operated on a shared assumption, giving rise to an estoppel by convention, that the square footage was 1,120 square feet as specified in the 2010 agreement; and in finding that Bloorston was not entitled to change the method of allocation of property taxes as it [page582] did. Bloorston adds that the motion judge's reasons were inadequate on each matter.
[82] These arguments attack the motion judge's interpretation of commercial agreements, which is subject to a deferential standard of review absent extricable legal error: Sattva Capital v. Creston Moly, [2014] 2 S.C.R. 633, [2014] S.C.J. No. 53, 2014 SCC 53, at para. 55. No extricable legal error has been shown. They also attack the motion judge's findings of fact and mixed fact and law, which are also entitled to deference. I am not satisfied that any palpable and overriding error has been shown. The motion judge's reasons explain why he reached the conclusions that he did. I am not persuaded that any basis has been shown to justify appellate interference.
Conclusion
[83] For these reasons, I would dismiss the appeal. If the parties are unable to agree on costs of the appeal, they may make written submissions, not exceeding three pages each, within ten days of the date of these reasons.
Appeal dismissed.
Notes
[^1]: See Business Corporations Act, R.S.O. 1990, c. B.16, s. 92 ("OBCA"). Section 246 of the OBCA permits a shareholder, in some circumstances, to pursue a derivative action in the name of and on behalf of the corporation when the directors of the corporation are unwilling to bring the action. When a derivative action is authorized, it is still the corporation's cause of action that is pursued for the benefit of the corporation. The issue in this appeal is whether the respondent had a personal cause of action for diminution in share value.
[^2]: The motion judge noted that Sang did not bring a cross-motion for summary judgment. He proceeded on the basis that he was permitted to grant judgment in favour of Sang because of this court's decision in Hunter-Rutland Inc. v. Huntsville (Town), [2015] O.J. No. 2515, 2015 ONCA 353 (C.A.), at para. 5.
[^3]: Bloorston points to Malata Group (HK) Ltd. v. Jung (2008), 89 O.R. (3d) 36, [2008] O.J. No. 519, 2008 ONCA 111 (C.A.); Harris v. Leikin Group Inc. (2014), 120 O.R. (3d) 508, [2014] O.J. No. 2914, 2014 ONCA 479 (C.A.); Rea v. Wildeboer (2015), 126 O.R. (3d) 178, [2015] O.J. No. 2651, 2015 ONCA 373 (C.A.); Midland Resources Holding Ltd. v. Shtaif (2017), 135 O.R. (3d) 481, [2017] O.J. No. 1978, 2017 ONCA 320 (C.A.), leave to appeal refused [2017] S.C.C.A. No. 246; Yaiguaje v. Chevron Corp. (2018), 141 O.R. (3d) 1, 2018 ONCA 472 (C.A.), leave to appeal refused [2018] S.C.C.A. No. 255; and SFC Litigation Trust.