Tran v. Bloorston Farms Ltd., 2017 ONSC 864
CITATION: Tran v. Bloorston Farms Ltd., 2017 ONSC 864
COURT FILE NO.: CV-14-504072
DATE: 20170206
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
SANG THI TRAN and 1835068 ONTARIO LTD.
Plaintiffs
– and –
BLOORSTON FARMS LTD.
Defendant
Evan L. Tingley, for the Plaintiffs
Mark A. Ross and Jeremy J. Lum-Danson, for the Defendant
HEARD: December 1, 2016
LEDERER J.
INTRODUCTION
[1] This is a motion for summary judgment. The plaintiff, Sang Thi Tran, in her personal capacity is, or rather was, the lessee of a property. The property was used by a business, a restaurant, operated by the corporate plaintiff, 1835068 Ontario Ltd. The plaintiff, Sang Thi Tran is its only shareholder. The property was purchased by the defendant Bloorston Farms Ltd. In short order it demanded additional payments on account of the rent. The plaintiff, Sang Thi Tran, refused to pay the increased amounts. The defendant evicted the plaintiffs. The plaintiffs have sued for breach of the lease. The defendant moves for summary judgment. The defendant submitted that the plaintiff, Sang Thi Tran has failed to show that she has suffered any loss. The corporate plaintiff, 1835068 Ontario Ltd., is a stranger to the lease and therefore can make no claim for its breach.
SUMMARY JUDGMENT
[2] This Court is rife with summary judgment motions. The full plate of these proceedings was occasioned by the change in the applicable rule which became effective on January 1, 2010. Where the rule had said that summary judgment was available when there was “no genuine issue for trial,”[^1] it now says that summary judgment is available when there is “no genuine issue requiring a trial.”[^2] The change was profound. Now parties have a right to a trial only where there is an issue that cannot be resolved without one:
There will be no genuine issue requiring a trial when the judge is able to reach a fair and just determination on the merits on a motion for summary judgment. This will be the case when the process (1) allows the judge to make the necessary findings of fact, (2) allows the judge to apply the law to the facts, and (3) is a proportionate, more expeditious and less expensive means to achieve a just result.[^3]
[3] The holding of a trial to resolve a dispute is no longer the “default procedure”.[^4]
[4] The change was made in recognition of a cultural shift that was required “to create an environment promoting timely and affordable access to the civil justice system. This shift entails simplifying pre-trial procedures and moving the emphasis away from the conventional trial in favour of proportional procedures tailored to the needs of the particular case.”[^5]
[5] Courts such as this one have been instructed to reshape their processes to meet present day expectations:
The balance between procedure and access struck by our justice system must come to reflect modern reality and recognize that new models of adjudication can be fair and just.[^6]
[6] This case asks the court to consider how far this instruction requires us to travel. It is one thing to say that a concern fairly brought forward, nonetheless, does not raise an issue requiring a trial and closing off any further proceeding through a summary process. It is quite another to take a case where the issues have not been properly recognized and dismiss it rather than allow for adjustments to be made, perhaps through an amendment to the statement of claim, permitting a genuine issue requiring a trial to proceed.
BACKGROUND
[7] On July 24, 2006, Hieu Tran, the sister of the plaintiff, Sang Thi Tran, entered into a 10-year and three month lease for the premises at issue in this action. The lease included provisions that assignments and subletting were not permitted without the consent of the landlord. Any assignee would be required to execute a written contract with the landlord agreeing to be bound by all the terms of the lease. From the outset (2006) the restaurant business was not carried out by Hieu Tran in her personal capacity. Until 2010 the restaurant was operated by a numbered company, 1286184 Ontario Ltd. The business assets and equipment belonged to that corporation. There is no evidence which suggests that the landlord consented to this arrangement or was aware that the company was operating on the premises.
[8] Sometime in 2010, Hieu Tran decided to transfer the business to her sister, Sang Thi Tran. She called the landlord and, on December 1, 2010, the lease was amended such that Sang Thi Tran became the tenant. On October 18, 2010, Hieu Tran incorporated the defendant 1835068 Ontario Ltd. Sang Thi Tran understood that the restaurant was being transferred to her but did not know that a company was to be incorporated or that she would be its sole shareholder and director. It appears that the initial owner of the business, 1286184 Ontario Ltd., did not sell its equipment to 1835068 Ontario Ltd. There is no paperwork or consideration for the transfer of the business assets from one company to the other.
[9] After the transfer of the lease, the restaurant was operated and owned by 1835068 Ontario Ltd.; all revenues and expenses of the restaurant were reported to and realized by that company. The landlord was not asked and never consented to the assignment of the lease to 1835068 Ontario Ltd. Sang Thi Tran remained the tenant.
[10] During February 2014, the defendant, Bloorston Farms Ltd., purchased the property. At that time Sang Thi Tran executed a “Tenant’s Acknowledgement” confirming that the lease was valid and subsisting, that she was the tenant and was conducting business operations in accordance with the lease.
[11] On April 1, 2014, the defendant, now the landlord, charged Sang Thi Tran, retroactive to January 1, 2014, rent of $3,715.83 per month (an increase of $615.83) and additional rent based, in part, on a 43.59% share of the property taxes instead of the pre-existing 26.77%. Sang Thi Tran refused to pay these additional amounts. She did pay rent for April, in the amount of $5, 114.09, being the same amount she had been charged, for the preceding three months and paid prior to the sale of the property. On April 25, 2014, the defendant terminated the lease and changed the locks.
[12] On May 13, 2014, Sang Thi Tran commenced this action for damages for wrongful termination of the lease. At that time, she was the only named plaintiff. During December 2014, Sang Thi Tran served an affidavit of documents. In response, counsel for the defendant wrote to counsel for the plaintiffs noting that not a single document that supported any claim for damages was referred to or listed. Within a few days a revised affidavit of documents was served. It included a balance sheet and the 2012 and 2013 income tax returns for 1835068 Ontario Ltd. The claim was subsequently amended to add 1835068 Ontario Ltd. as a plaintiff. The defendant (Bloorston Farms Ltd.) had never heard of 1835068 Ontario Ltd. It was not notified that anyone other than the named tenant, Sang Thi Tran was operating the business.
[13] Examinations for discovery have taken place. Any damage that Sang Thi Tran was able to identify was with respect to the operation of the business and was not suffered in her personal capacity.
ANALYSIS
[14] It is on this foundation that the defendant argues for summary judgment. The corporate plaintiff is not a party to the lease and can make no claim for damages suffered as a result of it having been breached. The personal plaintiff cannot claim the damages suffered by the company. This being so, it is said that the there is no genuine issue requiring a trial and the case should be dismissed.
[15] The fundamental question is whether the personal plaintiff is, as the defendant submits, estopped from making a claim.
[16] In saying that she is, counsel for the defendant relies on the rule in Foss v. Harbottle[^7] with particular reference to the decision of the Ontario Court of Appeal in Meditrust Healthcare Inc. v. Shoppers Drug Mart[^8] . The rule in Foss v. Harbottle is from the hoary[^9] past. The case was decided 173 years ago (1843). It is this rule which holds that “a shareholder does not have a cause of action for a wrong done to the corporation.” [^10] In Meditrust Healthcare Inc. v. Shoppers Drug Mart the plaintiff was a company that owned a national mail-order pharmacy business. As a result of certain regulatory limitations on companies that compound and dispense medications (the majority of its directors and shareholders owning each class of shares had to be pharmacists) the actual operation of the business was conducted through subsidiaries owned by the plaintiff. It was alleged that the defendant, Shoppers Drug Mart, and other respondents conspired to destroy the business of the plaintiff.
[17] A motion was brought for partial summary judgment to dismiss most of the claims. The motion was successful. The motion judge held that for the claims made, any damages were not those of the plaintiff but were derivative of damages suffered by the subsidiaries.[^11] The rule in Foss v. Harbottle barred the claims. With one exception (a claim for loss of goodwill) the Court of Appeal agreed. Counsel for the defendant (Bloorston Farms Ltd.) submits that the same logic applies here. Any damages claimed are those of the corporation and not Sang Thi Tran. Because the corporation is not a party to the contract (the lease) said to have been breached, it has no claim. The action should be dismissed.
[18] This sets up what to my mind would be an unfortunate possibility. The defendant, the new landlord, could buy a property, arbitrarily increase the rent, back date those increases and escape any liability for a breach of the lease which, in turn, destroyed the restaurant business that was active on the property. The defendant may well argue that the loss of the right to sue arose from the failure of the plaintiffs to inform the landlord of the occupancy of the premises by the corporation that operated the business. This seems disproportionate. It is not as if the landlord was unaware of the restaurant and the fact that taking over the property and changing the locks, in the face of the rent called for by the lease having been paid, would cause damage and loss to someone. The landlord would be saved from liability for harm caused by its actions.
[19] In Quadrangle Group LLC et al. v. Attorney General of Canada[^12] investors in a wireless telephone provider sued Industry Canada. They alleged they had been misled into making the investment by the assurances of government representatives that the government was intent on seeing the introduction of new, sustainable entrants into what was acknowledged to be a competitive market with aggressive incumbents. The assurances included the promise that the investment would not be lost because, after five years, any licenses for spectrum over which the wireless service was provided could be transferred to an existing operator. The government failed to follow through on its promises and the investors lost substantially all of their investment, tens of millions of dollars.
[20] The government sought to strike out the statement of claim. There could be no cause of action. The losses were derivative. They were the losses of the company through which the service had been provided. For the plaintiffs to sue, their damages must be independent of the losses of the corporation. They were not.
[21] The judge noted that if this was the correct perspective it would mean that if a civil wrong had been committed by Industry Canada there would be no liability. The corporation had no claim. (The assurances that were at the root of the claim were made before the company existed.) This is essentially the position taken by the defendant in the case I am asked to decide. In Quadrangle Group LLC et al. v. Attorney General of Canada the judge found this to be “…a startling proposition.”[^13] He found the test required for a statement of claim to be struck had not been met. It was “…not plain and obvious that the claims [could not] succeed.”[^14] As pleaded, the losses that had been suffered were losses of the plaintiff and not of the company.[^15]
[22] A closer look at Meditrust Healthcare Inc. v. Shoppers Drug Mart provides a possible approach to the problem this analysis projects. It notes:
The rule in Foss v. Harbottle does not, of course, preclude an individual shareholder from maintaining a claim for harm done directly to it.[^16]
[23] And then quotes Hercules Management Ltd. v. Ernst & Young:[^17]
One final point should be made here. Referring to the case of Goldex Mines Ltd. v. Revill (1974), 1974 CanLII 433 (ON CA), 7 O.R. (2d) 216 (C.A.), the appellants submit that where a shareholder has been directly and individually harmed, that shareholder may have a personal cause of action even though the corporation may also have a separate and distinct cause of action. Nothing in the foregoing paragraphs should be understood to detract from this principle….[^18]
[24] Is there such an individual claim available to the personal plaintiff (Sang Thi Tran), in this case? It was posited that, as a result of the actions of the defendant and the harm it is said to have caused the corporate plaintiff (1835068 Ontario Ltd.), the values of the shares owned by Sang Thi Tran would have decreased in value and that this would represent an individual loss, separate from the harm caused to 1835068 Ontario Ltd.
[25] This was considered in Meditrust Healthcare Inc. v. Shoppers Drug Mart. It begins with the idea that a shareholder has no independent right of action based on an allegation of loss in the value of his, her or its shares as a result of damage to the company. “The shareholder does not suffer a direct loss. Its loss merely reflects the loss suffered by the company.”[^19] The Court of Appeal, despite the entreaties made on behalf of the plaintiff (Meditrust) that the principle be reconsidered in light of “recent English case law”, refused to do so. The court went on and quoted Johnson v. Gore Wood & Co.,[^20] a decision of the House of Lords:
Where a company suffers loss but has no cause of action to sue to recover that loss, the shareholder of 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.[^21]
[26] This was held not to support the position taken by Meditrust:
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.[^22]
[27] Is the same true in the case now before the court? Certainly, the defendant, in bringing this motion, relies on the proposition that the company does not have a cause of action. This arises from the established fact that it has no contractual relationship with the defendant; it was not a party to the lease.[^23] Thus, unlike Meditrust Healthcare Inc. v. Shoppers Drug Mart where the subsidiaries (the underlying corporations) could have sued for the losses attributable to the improper actions of Shoppers Drug Mart, in this case, the owner of the business has no claim that can be made for breach of the lease.
[28] On the other hand, Sang Thi Tran was a party to the contract and would have an action for its breach if she suffered a loss. She was the only shareholder of the corporate plaintiff. The business it operated was ended by the alleged improper termination of the lease. Clearly the value of any share or shares which demonstrated ownership would have lost value. From this foundation it would seem there is a viable cause of action and an issue requiring a trial. Typically, in such a case, the motion for summary judgment would not succeed.
[29] There is a distinction between this case and both Meditrust Healthcare Inc. v. Shoppers Drug Mart and Quadrangle Group LLC et al. v. Attorney General of Canada which bears on this otherwise expected result. In those cases the claims at issue were referred to in the pleadings. In this case the question of whether the plaintiff, Sang Thi Tran, has an independent claim arising from the loss of value of whatever shares she held in the company was not referred to in the statement of claim. The evidence provided at the examinations and cross-examinations demonstrate nothing that would support such a claim. This approach to the action was first raised in the factum which supports the position taken by the plaintiff on this motion.[^24] The factum provides no specific reference to the damages that are independent of those suffered by the company. Rather, a request was made to set aside the corporate veil and allow Sang Thi Tran to claim the damages of the corporation. This would be consistent with a claim reliant on the understanding found in Johnson v. Gore Wood & Co. that a reduction in the value of shares, where the company can make no claim, may sustain an action brought in the name of a shareholder (see para. [25] above (fn. 21)). In the normal course such a claim would be considered to be derivative but where the corporations cannot make the claim there is nothing for it to be derivative of.
[30] The fact remains that this is not the subject of the statement of claim which presently supports this action. In effect the defendant is saying that if the plaintiff has failed to understand the cause of action available to her, and launched one that cannot stand, she has failed to put her best foot forward as the rule and its application require.[^25] The defendant has a right to summary judgment and the court should be prepared to make the order.
[31] It is at this point that I return to the concern raised at the outset of these reasons. Summary judgment is meant to provide an expedited route to resolution where a trial is not required. It is not designed to run over plaintiffs who fail to fully understand the merits of their case and may not move quickly enough to amend the claim. I venture to say that every law office, where litigation is practiced, is replete with files where the understanding of the claim has evolved and changed over time. This should not be a race between a defendant seeking summary judgment and a plaintiff searching for the best approach to an action. In this case, the granting of the motion would lead to the unpalatable result alluded to by the judge in Quadrangle Group LLC et al. v. Attorney General of Canada. The defendant, assuming it breached the lease, would avoid liability because the plaintiff failed to appreciate the true nature of her claim until after the motion for summary judgment was commenced.
[32] In the circumstance, I am not prepared to grant the motion for summary judgment at this time. Rather, I adjourn it for two months to allow the plaintiffs sufficient time to move to amend their statement of claim. In the event that there is such a motion and it succeeds, this motion will be dismissed, without prejudice, to a further motion for summary judgment should the action as then constituted warrant it. If no motion is brought or the amendment is refused this motion for summary judgment will be granted. In order to expedite this, I am seizing myself of the motion to amend the statement of claim if one is brought.
[33] If required counsel are to contact my office so that a schedule and a date can be set.
[34] Costs to date will have to wait for the final resolution of this motion.
Lederer J.
Released: February 6, 2017
CITATION: Tran v. Bloorston Farms Ltd., 2017 ONSC 864
COURT FILE NO.: CV-14-504072
DATE: 20170206
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
SANG THI TRAN and 1835068 ONTARIO LTD.
Plaintiffs
– and –
BLOORSTON FARMS LTD.
Defendant
REASONS FOR JUDGMENT
Lederer J.
Released: February 6, 2017
[^1]: Rules of Civil Procedure, R.R.O. 1990, O. Reg. 194, s. 20.04(2)(a) r. 20.04(2) as it existed prior to 2010. [^2]: Rules of Civil Procedure, supra [^3]: Hryniak v. Mauldin 2014 SCC 7, 2014 1 S.C.R. 87, 366 DLR (4th) 641, 46 CPC (7th) 217 at para. 49 [^4]: Ibid at para. 43 [^5]: Ibid at para. 2 [^6]: Ibid at para. 2 [^7]: (1843), 2 Hare 461, 67 E.R. 189 (Eng. V.C) [^8]: 2002 CanLII 41710 (ON CA), [2002] O.J. No. 3891, 117 A.C.W.S. (3d) 713, 165 O.A.C. 147, 2002 CarswellOnt 3380 [^9]: “old and trite” The Concise Oxford Dictionary, Ninth Edition, Oxford University Press [^10]: Meditrust Healthcare Inc. v. Shoppers Drug Mart, supra (fn. 8) at paras. 1 and 12 [^11]: (2001) B.L.R. (3d) 221 (Ont. S.C.J.) (per Molloy J.) [^12]: 2015 ONSC 1521 [^13]: Quadrangle Group LLC et al. v. Attorney General of Canada, supra (fn. 12) at para. 16 [^14]: Ibid at para. 17 [^15]: Ibid at para. 18 [^16]: Meditrust Healthcare Inc. v. Shoppers Drug Mart, supra (fn. 8) at para. 16 [^17]: 1997 CanLII 345 (SCC), [1997] 2 S.C.R. 165, 115 Man. R. (2d) 241, 146 D.L.R. (4th) 577, 211 N.R. 352, 139 W.A.C. 241, [1997] 8 W.W.R. 80, 31 B.L.R. (2d) 147, 35 C.C.L.T. (2d) 115 [^18]: Meditrust Healthcare Inc. v. Shoppers Drug Mart, supra (fn. 8) at para. 16 quoting ibid (Hercules Management Ltd. v. Ernst & Young) at p. 214 (S.C.R.) The quotation goes on to note that the determination in Hercules Management Ltd. v. Ernst & Young that losses stemming from the failure to oversee management are derivative and not personal indicates that these losses do not raise individual claims. They are the result of wrongs to the corporation and, therefore, limited by the rule in Foss v. Harbottle. [^19]: Ibid at para. 42 referring to Martin v. Goldfarb, 1998 CanLII 4150 (ON CA), 1998 CarswellOnt 3319, 112 O.A.C. 138, 163 D.L.R. (4th) 639, 42 C.C.L.T. (2d) 271, 41 O.R. (3d) 161, 44 B.L.R. (2d) 158 (Ont. C.A.) — considered at para. 59 and Rogers v. Bank of Montreal, 1985 CanLII 150 (BC SC), [1985] 5 W.W.R. 193 (B.C. S.C.); aff'd (1986), 1986 CanLII 847 (BC CA), [1987] 2 W.W.R. 364 (B.C. C.A.). [^20]: [2001] 1 All E.R. 481 (U.K. H.L.), [^21]: Johnson v. Gore Wood & Co, supra (fn. 16) at p. 503 quoted in Meditrust Healthcare Inc. v. Shoppers Drug Mart, supra (fn. 8) at para. 43 [^22]: Ibid (Meditrust) This approach was referred to and relied on in Quadrangle Group LLC et al. v. Attorney General of Canada, supra (fn. 12) at para. 21 where the quotation from Johnson v. Gore Wood & Co, supra (fn. 20) at fn. 21 is repeated. [^23]: The plaintiffs concede this point in their Factum prepared for the motion. At para. 22 they say: The plaintiffs concede that 183 has no contractual relationship with the defendant and likely no legal remedy against the defendant for its damages. [^24]: Plaintiff’s Responding Factum at para. 23 where there is reference to Quadrangle Group LLC et al. v. Attorney General of Canada, supra (fn. 12) and to the quotation found therein which originates in Johnson v. Gore Wood & Co, supra (fn. 20) and is repeated herein at fn. 21 [^25]: The obligation to put one’s best foot forward, sometimes referred to as “lead trump or risk losing” (see: for example Boland v. Lyle 2015 ONSC 7418, 262 A.C.W.S. (3d) 618 at para. 13: “The expectation that parties ‘put their best food forward’ or ‘lead trump or risk losing’ in motions for summary judgment applies with even more fervor after Hryniak…”) is widely accepted in the jurisprudence: On a summary judgment motion, each side must “put its best foot forward” with respect to the existence of material issues to be tried. On a motion for summary judgment, a party is not entitled to sit back and rely on the possibility that more favourable facts may develop at trial… (Archibald, Killeen, Morton Ontario Superior Court Practice, 2017 LexisNexis at p. 1039)