Crystalline Investments Ltd. v. Domgroup Ltd., [2004] 1 S.C.R. 60, 2004 SCC 3

Domgroup Ltd. Appellant

v.

Crystalline Investments Ltd. and Burnac Leaseholds Ltd. Respondents

Indexed as: Crystalline Investments Ltd. v. Domgroup Ltd.

Neutral citation: 2004 SCC 3.

File No.: 29196.

2003: November 7; 2004: January 29.

Present: McLachlin C.J. and Iacobucci, Major, Binnie, LeBel, Deschamps and Fish JJ.

on appeal from the court of appeal for ontario

Bankruptcy — Proposals — Disclaimer of commercial leases — Tenant validly assigning leases and assignee subsequently becoming insolvent — Assignee giving landlords notice of intention to repudiate leases pursuant to s. 65.2 of Bankruptcy and Insolvency Act — Whether repudiation of leases under s. 65.2 relieved first tenant of its obligations as original lessee — Whether post-disclaimer, assignors and guarantors must be treated in same manner with respect to liability — Bankruptcy and Insolvency Act, R.S.C. 1985, c. B‑3, s. 65.2.

Landlord and tenant — Commercial leases — Assignment clause — Insolvent commercial tenant — Tenant validly assigning leases and assignee subsequently becoming insolvent — Assignee giving landlords notice of intention to repudiate leases pursuant to s. 65.2 of Bankruptcy and Insolvency Act — Whether rights between landlords and original tenant affected by proceedings under s. 65.2 — Bankruptcy and Insolvency Act, R.S.C. 1985, c. B‑3, s. 65.2.

The appellant was the respondents’ original tenant. Ultimately, F held the validly assigned leases. F later became insolvent and attempted reorganization under the Bankruptcy and Insolvency Act. F, through its trustee, repudiated the leases. Pursuant to s. 65.2(3) of the Act, the respondents received compensation payments equivalent to six months rent upon approval of the proposal. The respondents informed the appellant that F had repudiated the leases and asserted their right to be paid the outstanding rent under the assignment clause in the leases. The appellant declined to pay. The respondents filed suit and the appellant applied for summary judgment in both cases. Holding that the notices of repudiation given under s. 65.2 terminated the leases for all purposes, the motions judge granted summary judgment and dismissed the respondents’ claims. The Court of Appeal reversed the judgment, finding that the rights between the respondents and the appellant were unaffected by proceedings under s. 65.2.

Held: The appeal should be dismissed.

The repudiation of the leases under s. 65.2 of the Act did not affect the appellant’s obligations as the original lessee. Section 65.2 should be read narrowly. The plain purposes of the section are to free an insolvent from obligations under a commercial lease that have become too onerous, to compensate the landlord for the early determination of the lease, and to allow the insolvent to resume viable operations as best it can. Repudiation benefits only the insolvent. Nothing in the Act protects third parties, including assignors, from the consequences of an insolvent’s repudiation of a commercial lease. From the time a lease is completed, the original tenant is bound by all the conditions of the lease, including the term. The covenant is fully enforceable even if it has been assigned. Explicit statutory language is required to divest persons of rights they otherwise enjoy at law. So long as the doctrine of paramountcy is not triggered, federally regulated bankruptcy and insolvency proceedings cannot be used to subvert provincially regulated property and civil rights.

The mere possibility that the original tenant may have a right of indemnity against his insolvent assignee and is able to make a claim to participate in the proposal proceedings as an unsecured creditor is not inconsistent with the Act. On the contrary, it is consistent with the circumstances applicable to other alternative debtors, and does not affect or alter the nature of the original tenant’s contractual relationship and obligations. More importantly, it does not require that the original tenant be discharged from liability.

In distinguishing between a guarantor and an assignor post-disclaimer, Cummer-Yonge Investments Ltd. v. Fagot, [1965] 2 O.R. 152, has created uncertainty in leasing and bankruptcy and should be overruled. Post-disclaimer, assignors and guarantors ought to be treated the same with respect to liability.

Cases Cited

Overruled: Cummer-Yonge Investments Ltd. v. Fagot, [1965] 2 O.R. 152, aff’d [1965] 2 O.R. 157n; referred to: Guarantee Co. of North America v. Gordon Capital Corp., [1999] 3 S.C.R. 423; McNeil v. Train (1848), 5 U.C.Q.B. 91; Wotherspoon v. Canadian Pacific Ltd. (1979), 22 O.R. (2d) 385; Francini v. Canuck Properties Ltd. (1982), 35 O.R. (2d) 321; Transco Mills Ltd. v. Percan Enterprises Ltd. (1993), 100 D.L.R. (4th) 359; Warnford Investments Ltd. v. Duckworth, [1978] 2 All E.R. 517; Peterborough Hydraulic Power Co. v. McAllister (1908), 17 O.L.R. 145; Stacey v. Hill, [1901] 1 Q.B. 660; Hindcastle Ltd. v. Barbara Attenborough Associates Ltd., [1996] 1 All E.R. 737; Husky Oil Operations Ltd. v. Minister of National Revenue, [1995] 3 S.C.R. 453; Giffen (Re), [1998] 1 S.C.R. 91.

Statutes and Regulations Cited

Bankruptcy and Insolvency Act, R.S.C. 1985, c. B‑3, Part III, ss. 62(3), 65.2 [ad. 1992, c. 27, s. 30], 179.

Landlord and Tenant (Covenants) Act 1995 (U.K.), 1995, c. 30.

Rules of Civil Procedure, R.R.O. 1990, Reg. 194, r. 20.04(2).

Authors Cited

Goldfarb, Clifford S. “The Rights and Obligations of the Original Tenant and Subsequent Tenants after an Assignment of Lease”. In H. M. Haber, ed., Assignment, Subletting and Change of Control in a Commercial Lease. Aurora, Ont.: Canada Law Book, 2002, 157.

Lem, Jeffrey W., and Stefan T. Proniuk. “Goodbye ‘Cummer-Yonge’: A Review of Modern Developments in the Law Relating to the Liability of Guarantors of Bankrupt Tenants” (1993), 1 D.R.P.L. 419.

APPEAL from a judgment of the Ontario Court of Appeal (2002), 58 O.R. (3d) 549, 210 D.L.R. (4th) 659, 156 O.A.C. 392, 27 B.L.R. (3d) 102, 49 R.P.R. (3d) 171, 31 C.B.R. (4th) 225, [2002] O.J. No. 883 (QL), reversing a judgment of the Superior Court of Justice (2001), 39 R.P.R. (3d) 49, 31 C.B.R. (4th) 216, [2001] O.J. No. 736 (QL). Appeal dismissed.

Fred D. Cass, Lawrence J. Crozier and David Stevens, for the appellant.

Peter-Paul E. DuVernet, for the respondents.

The judgment of the Court was delivered by

Major J. —

I. Introduction

[1] This appeal arises from a motion for summary judgment. The facts are undisputed. The respondents, Crystalline Investments Limited (“Crystalline”) and Burnac Leaseholds Limited (“Burnac”), while owners of different properties, are referred to collectively as the “landlords”.

[2] Dominion Stores Limited was the original tenant of the landlords. It is not clear from the record nor is it relevant whether Dominion Stores Limited became Domgroup Limited (“Domgroup”) by reorganization or by a change of name. For purposes of this appeal, the appellant Domgroup can be viewed as the original tenant.

[3] Domgroup assigned the leases to Coastal Foods Limited (“Coastal Foods”), a wholly owned subsidiary. The consent of the landlords was not required under the leases for the assignments. Domgroup subsequently sold Coastal Foods which amalgamated to form Food Group Inc. (“Food Group”). Food Group later became insolvent and attempted a reorganization under the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (the “Act”), as amended to 1994.

[4] The question is whether the terms of the reorganization by the insolvent assignee through its trustee where it purported to repudiate the leases under s. 65.2 of the Act affect the obligations between the landlords and the original tenant.

[5] The procedure for granting summary judgment in Ontario was set out in rule 20.04(2) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194. That rule provided as follows at the time:

20.04 . . .

(2) Where the court is satisfied that there is no genuine issue for trial with respect to a claim or defence, the court shall grant summary judgment accordingly.

[6] In Guarantee Co. of North America v. Gordon Capital Corp., [1999] 3 S.C.R. 423, at para. 27, Iacobucci and Bastarache JJ. discussed the legal principles that govern a motion for summary judgment:

The appropriate test to be applied on a motion for summary judgment is satisfied when the applicant has shown that there is no genuine issue of material fact requiring trial, and therefore summary judgment is a proper question for consideration by the court. See Hercules Managements Ltd. v. Ernst & Young, [1997] 2 S.C.R. 165, at para. 15; Dawson v. Rexcraft Storage and Warehouse Inc. (1998), 164 D.L.R. (4th) 257 (Ont. C.A.), at pp. 267‑68; Irving Ungerman Ltd. v. Galanis (1991), 4 O.R. (3d) 545 (C.A.), at pp. 550‑51. Once the moving party has made this showing, the respondent must then “establish his claim as being one with a real chance of success” (Hercules, supra, at para. 15).

The parties do not dispute the test for summary judgment.

[7] The motions judge held that notices of repudiation given under s. 65.2 terminated the leases for all purposes. Relying on Cummer-Yonge Investments Ltd. v. Fagot, [1965] 2 O.R. 152 (H.C.), he found that, since the leases no longer existed, the liabilities that would have been owed by the original tenant to the landlords also disappeared. He granted summary judgment dismissing the claims of the landlords who sought damages from the original tenant. The Ontario Court of Appeal reversed the trial judge and held that the rights between the landlords and the original tenant were unaffected by proceedings under s. 65.2. The appeal was allowed and the summary judgments set aside.

[8] For the reasons that follow, I agree with the Ontario Court of Appeal that the insolvency of the assignee and the order made pursuant to the Act do not affect the landlords who can continue to look to the original tenant for enforcement of the leases. The order affects the insolvent assignee and its creditors, including the original tenant and assignor of the leases, but does not reach to the landlords. I would dismiss the appeal.

[9] In this appeal, the appellant sought to rely on certain common law remedies and, in particular, advanced the defence of surrender which was neither pleaded nor raised before the motions judge or the Court of Appeal. Surrender must be pleaded. See McNeil v. Train (1848), 5 U.C.Q.B. 91; Wotherspoon v. Canadian Pacific Ltd. (1979), 22 O.R. (2d) 385 (H.C.), at p. 562. In these circumstances the court refused to consider the question.

[10] This appeal is limited to confirming that Food Group’s repudiation of the leases assigned to it by Domgroup did not, by virtue of s. 65.2 alone, terminate Domgroup’s rights and obligations under the leases. Section 65.2 relates to the repudiation of leases by insolvent commercial tenants. It is not concerned with the effects of that repudiation on third parties, such as assignors and guarantors. Whether the leases were terminated by surrender, as Domgroup argues for the first time in the Court, or by the application of some other principle of common law, is a question best left for trial.

II. Background

[11] On April 30, 1979, Domgroup leased premises from Crystalline. On April 24, 1980, Domgroup leased a different location from Burnac. Both premises were located in New Brunswick. The leases had 25-year terms and contained the following assignment clause:

Notwithstanding any assignment or sublease the Lessee shall remain fully liable under this lease and shall not be released from performing any of its covenants, obligations or agreements in this lease and shall continue to be bound by this lease.

[12] On May 25, 1985, Domgroup assigned both leases to Coastal Foods which later became Food Group.

[13] Food Group encountered financial difficulty and attempted a reorganization. In February of 1994, Food Group filed a notice of intention to make a proposal pursuant to Part III of the Act.

[14] Food Group then prepared and filed its proposal, stating that it believed the proposal would be “of benefit to its creditors and employees, and will enable the Food Group to continue in business, albeit on a much reduced scale”. Part of the proposal was that Food Group’s leases with Burnac and Crystalline be terminated pursuant to s. 65.2.

[15] On February 18, 1994, the insolvent Food Group, through its trustee, gave the original landlords, Burnac and Crystalline, notice of its intention to repudiate the leases. Neither Burnac nor Crystalline applied to the court to challenge the repudiation of the lease although entitled to do so under the Act. At no time did Food Group advise Domgroup of the proceedings.

[16] On March 18, 1994, the proposal was approved by the Court of Queen’s Bench for New Brunswick in Bankruptcy. On March 24, 1994, Burnac and Crystalline received compensation payments of $173,704.39 and $131,154.54, respectively, being the equivalent of six months rent under the leases pursuant to s. 65.2(3) of the Act. The repudiation was declared to be effective as of March 31, 1994.

[17] Food Group vacated Crystalline’s premises in March of 1994. It had previously vacated Burnac’s premises one year earlier, but had continued to pay rent.

[18] Burnac, one of the original landlords, entered into short-term leases with a bingo operation and started modifications to the premises to accommodate another tenant. Similarly, the other landlord, Crystalline, licensed its premises to kiosk-based vendors.

[19] On January 20, 1995, Burnac and Crystalline informed the original tenant, Domgroup, by mail that the insolvent, Food Group, had repudiated the leases. At the same time, they asserted their rights to be paid outstanding rent pursuant to the assignment clause in the leases. The letters did not acknowledge the termination of the leases as of March 31, 1994.

[20] Domgroup declined to pay. Burnac and Crystalline both sued in Ontario Superior Court. Domgroup, on application, was granted summary judgment in both cases. Both were later reversed by the Ontario Court of Appeal.

III. Relevant Statutory Provisions

[21] Bankruptcy and Insolvency Act, R.S.C. 1985, c. B‑3

65.2 (1) At any time between the filing of a notice of intention and the filing of a proposal, or on the filing of a proposal, in respect of an insolvent person who is a commercial tenant under a lease of real property, the insolvent person may repudiate the lease on giving thirty days notice to the landlord in the prescribed manner, subject to subsection (2).

(2) Within fifteen days after being given notice of the repudiation of a lease under subsection (1), the landlord may apply to the court for a declaration that subsection (1) does not apply in respect of that lease, and the court, on notice to such parties as it may direct, shall make such a declaration unless the insolvent person satisfies the court that the insolvent person would not be able to make a viable proposal, or that the proposal the insolvent person has made would not be viable, without the repudiation of that lease and all other leases that the tenant has repudiated under subsection (1).

(3) Where a lease is repudiated pursuant to subsection (1), a proposal filed by the insolvent person must provide for payment to the landlord, immediately after court approval of the proposal, of compensation equal to the lesser of

(a) an amount equal to six months rent under the lease, and

(b) the rent for the remainder of the lease, from the date on which the repudiation takes effect.

(4) For the purpose of voting on any question relating to a proposal referred to in subsection (3), the landlord does not have any claim in respect of accelerated rent, damages arising out of the repudiation, or the compensation referred to in subsection (3).

(5) Nothing in subsections (1) to (4) affects the operation of section 146 in the event of bankruptcy.

(6) Where an insolvent person who has made a proposal referred to in subsection (3) becomes bankrupt

(a) after court approval of the proposal and before the proposal is fully performed, and

(b) after compensation referred to in subsection (3) has been paid,

the landlord has no claim against the estate of the bankrupt for accelerated rent.

IV. Judicial History

A. Ontario Superior Court of Justice (2001), 39 R.P.R. (3d) 49

[22] The motions for summary judgment by Domgroup were heard by Trafford J. on March 1, 2001, and by consent, the legal issue was stated as follows:

Is a landlord, following the Court-approved termination of a commercial lease under s. 65.2 of the 1992 Act and following acceptance of the compensation provided for by the statutory code, entitled to arrears of rent, or for damages, in respect of the unexpired term of the terminated lease as against the pre-proposal assignor of the lease?

[23] The motions judge held that the court-approved termination of the leases ended all obligations of the parties and rendered the assignment clause inoperative. The compensation paid to the landlords under s. 65.2 constituted the total compensation for all damages to which they were entitled under the leases. Since the entire lease, including the assignment clause, was terminated by the court order, there was no basis in law for the claims made against the original tenant, Domgroup. He granted summary judgment in both cases.

B. Ontario Court of Appeal (2002), 58 O.R. (3d) 549

[24] The Ontario Court of Appeal (2002) rejected the conclusion of the motions judge that the provisions of s. 65.2 terminated the leases for all purposes. In the view of Carthy J.A., the rights between the landlords and the original tenant were unaffected by the insolvency proceedings. He found no change in this result was warranted by the 1997 amendment to the English version of s. 65.2 from the term “repudiate” to “disclaim”.

[25] The Court of Appeal held that the consequences of repudiation should be restricted to those provided for in s. 65.2 having regard to the purposes of insolvency proceedings as a whole. While the insolvency proceedings permitted Food Group as the insolvent to shed its obligations, the rights and liabilities of Domgroup to the landlords under the leases remained intact.

V. Analysis

A. The Construction of Section 65.2

[26] The dispute is whether the Act has relieved the appellant Domgroup of its obligations by the assignment of the leases ultimately to the insolvent. More precisely, should s. 65.2 be interpreted to bring all the obligations between the appellant and respondents to an end when the leases were repudiated by the insolvent, Food Group?

[27] While the drafting of s. 65.2 focusses on bilateral relationships, such as a simple lease between a landlord and a tenant, the effect of the repudiation does not change in circumstances such as the present ones, involving a tripartite arrangement resulting from the assignment of a lease. In both situations, the repudiation must be construed as benefiting only the insolvent.

[28] I, thus, agree with the Court of Appeal that s. 65.2 should be read narrowly. The plain purposes of the section are to free an insolvent from the obligations under a commercial lease that have become too onerous, to compensate the landlord for the early determination of the lease, and to allow the insolvent to resume viable operations as best it can. Nothing in s. 65.2, or any part of the Act, protects third parties (i.e., guarantors, assignors or others) from the consequences of an insolvent’s repudiation of a commercial lease. That is to say that they remain liable when the party on whose behalf they acted becomes insolvent.

[29] When a lease is finalized, the landlord and tenant then have privity of contract and privity of estate. See Francini v. Canuck Properties Ltd. (1982), 35 O.R. (2d) 321 (C.A.), at pp. 322‑23. When the lease is assigned, the landlord’s privity of estate with the original tenant comes to an end, but the privity of contract continues and the original tenant remains liable upon its covenant. The estate or interest in the tenancy is transferred to the assignee, who, by being entitled to possession, is obliged to make payment of rent, but, subject to the terms of the lease and the agreement of the parties, the original tenant remains liable should his assignee not pay the rent. See C. S. Goldfarb, “The Rights and Obligations of the Original Tenant and Subsequent Tenants after an Assignment of Lease”, in H. M. Haber, ed., Assignment, Subletting and Change of Control in a Commercial Lease (2002), 157.

[30] Both the British Columbia Court of Appeal in Transco Mills Ltd. v. Percan Enterprises Ltd. (1993), 100 D.L.R. (4th) 359, at p. 366, and Carthy J.A., here, at para. 16, quoted from Vice-Chancellor Megarry in Warnford Investments Ltd. v. Duckworth, [1978] 2 All E.R. 517 (Ch. D.), at p. 526, where the position of an original tenant in bankruptcy proceedings is discussed. It is worth repeating:

The original lessee is a person who as principal, undertook towards the lessor, the obligations of the lease for the whole term; and there is nothing in the process of assignment which replaced this liability by the mere collateral liability of a surety who must pay the rent only if the assignee does not. The bankruptcy of the assignee has for the time being destroyed the original lessee’s right against the assignee to require him to discharge the obligations of the lease, and it has impaired the lessee’s right of indemnity against him when he has to discharge the obligations himself; but it has not affected his primary liability towards the lessor, which continues unaffected. At no time does an original lessee become a mere guarantor to the lessor of the liability of any assignee of the lease. [Emphasis added.]

[31] From the time a lease is completed, the original tenant is bound by all the conditions, including the term. Despite the hardship that may later develop, the covenant is fully enforceable even if it has been assigned. In England, however, public concern over the continuing liability of original tenants in post-assignment bankruptcy situations resulted in the enactment of the Landlord and Tenant (Covenants) Act 1995 (U.K.), 1995, c. 30. As a result, when a tenant in England lawfully assigns a lease, that tenant will have no further obligations with respect to the covenant. To effect the same result in Canada, similar legislation is needed.

B. Does the Common Law Indemnification Right Frustrate the Act?

[32] If the liabilities remain enforceable by the landlord against the original tenant, then presumably the original tenant can exercise its common law indemnification rights against its assignee as an unsecured creditor. See Peterborough Hydraulic Power Co. v. McAllister (1908), 17 O.L.R. 145 (C.A.), at p. 151. The original tenant could therefore prove a claim in insolvency against that assignee under this right of indemnity. As a result, the insolvent assignee could face an additional claim on the lease in excess of the preferred payment required to be paid to the landlord under s. 65.2.

[33] The appellant submits this result would frustrate the objectives of the Act and is the reason that a repudiation under s. 65.2 should terminate a lease for all purposes. I disagree for two reasons.

[34] First, an assignor is no different from other alternative debtors, none of which is excused under the Act. For example, s. 179 states:

179. An order of discharge does not release a person who at the date of the bankruptcy was a partner or co-trustee with the bankrupt or was jointly bound or had made a joint contract with him, or a person who was surety or in the nature of a surety for him.

While s. 62(3) provides:

62. . . .

(3) The acceptance of a proposal by a creditor does not release any person who would not be released under this Act by the discharge of the debtor.

Parliament therefore saw fit to conserve the liabilities of alternative debtors, yet chose not to extinguish their common law rights of indemnity.

[35] Second, where an original tenant seeks indemnification on a contingent claim, provided the claim is provable and not disallowed, it would fall into the insolvency to be dealt with in accordance with the scheme of the Act. The assignor simply joins the other unsecured creditors in the proceedings. If such a claim is approved, it cannot satisfy and at the same time frustrate the Act.

[36] Simply stated, the mere possibility that the original tenant may have a right of indemnity against his insolvent assignee and is able to make a claim to participate in the proposal proceedings as an unsecured creditor is not inconsistent with the statutory scheme. On the contrary, it is consistent with the circumstances applicable to other alternative covenantors, and does not affect or alter the nature of the original tenant’s contractual relationship and obligations. More importantly, it does not require that the original tenant be discharged from liability.

[37] I also question whether there is any justification for distinguishing between a guarantor and an assignor post-disclaimer. In Cummer-Yonge, supra, the landlord brought an action against guarantors of a bankrupt tenant for the unpaid rent accruing after the tenant’s bankruptcy but prior to the reletting of the leased premises. The trustee in bankruptcy had disclaimed the lease in accordance with the trustees’ rights under the then applicable federal bankruptcy and provincial landlord and tenancy legislation. The guarantee provision contained in the disclaimed lease provided as follows:

The Guarantors if one is a party hereto join for the first five (5) years of the term hereby granted for valuable consideration and for the purpose of guaranteeing the due performance by the Lessee of all its covenants in this lease including the covenant to pay rent on the part of the Lessee to be performed.

[38] Gale C.J.H.C. applied the reasoning of the English Court of Appeal in Stacey v. Hill, [1901] 1 Q.B. 660. He read the guarantee clause strictly as a pure surety provision and found that when the lease was disclaimed by a trustee in bankruptcy, the bankrupt’s covenants to perform were dissolved. Since the guarantors’ obligation is to assure performance of those covenants, their obligations disappeared with the covenants. The Ontario Court of Appeal affirmed the decision without reasons ([1965] 2 O.R. 157n).

[39] Cummer-Yonge has created uncertainty in leasing and bankruptcy. Not only have drafters of leases attempted to circumvent the holding in Cummer-Yonge by playing upon the primary and secondary obligation distinction, but courts have also performed what has been called “tortuous distinctions” in order to reimpose liability on guarantors. See J. W. Lem and S. T. Proniuk, “Goodbye ‘Cummer-Yonge’: A Review of Modern Developments in the Law Relating to the Liability of Guarantors of Bankrupt Tenants” (1993), 1 D.R.P.L. 419, at p. 436.

[40] Despite the division over Cummer-Yonge, the distinction between guarantors as having secondary obligations that disappear when a lease is disclaimed by a trustee in bankruptcy, and assignors as having primary obligations that survive a disclaimer, thrives in Canadian case law.

[41] Not surprisingly, Stacey v. Hill, supra, led to a similar situation in England. In Hindcastle Ltd. v. Barbara Attenborough Associates Ltd., [1996] 1 All E.R. 737 (H.L.), Lord Nicholls, faced with facts involving a guarantor of an assignor of a lease, gave a convincing illustration of the absurdity of maintaining this distinction, at p. 754:

This would make no sort of legal or commercial sense. This would mean that directors who guarantee their company’s obligations would not be liable if their own company became insolvent whilst tenant, but they would be liable if an assignee from their company encountered financial difficulties whilst tenant. Mr. Whitten, as guarantor of CIT’s obligations, remains liable to the landlord. According to Stacey v. Hill, had he been a guarantor of Prest’s liabilities [the assignee who became bankrupt], the disclaimer would have released him. What sort of a law would this be? [Emphasis in original.]

[42] The House of Lords went on to overrule Stacey v. Hill. In my opinion, Cummer-Yonge should meet the same fate. Post-disclaimer, assignors and guarantors ought to be treated the same with respect to liability. The disclaimer alone should not relieve either from their contractual obligations.

[43] The appellant submits that the English bankruptcy statute that was applied in Hindcastle clearly stated that disclaimer will not “affect the rights or liabilities of any other person”, and that s. 65.2 of the Act has no similar wording. I agree with the respondents’ rebuttal to this argument that the English wording affirms the ordinary construction of the statute. In other words, explicit statutory language is required to divest persons of rights they otherwise enjoy at law. As Carthy J.A. observed in the Court of Appeal, at paras. 11‑12, the lease may have real value to the original tenant and, on the wording of s. 65.2, cannot be eliminated in the absence of the original tenant’s agreement. In any event, so long as the doctrine of paramountcy is not triggered, federally regulated bankruptcy and insolvency proceedings cannot be used to subvert provincially regulated property and civil rights. See Husky Oil Operations Ltd. v. Minister of National Revenue, [1995] 3 S.C.R. 453; Giffen (Re), [1998] 1 S.C.R. 91.

[44] As previously noted, the appellant sought to argue surrender in this Court despite not having pleaded surrender in either action as a defence, and not raising the issue before the motions judge or the Court of Appeal. Like the other defences, surrender represents an issue for trial. The decision whether to allow amendments to the pleadings, and on what terms if any, should be left to the trial judge.

VI. Disposition

[45] I would dismiss the appeal and award the respondents their costs in this Court and below.

Appeal dismissed with costs.

Solicitors for the appellant: Aird & Berlis, Toronto.

Solicitors for the respondents: Glaholt & Associates, Toronto.