In our newsletter of August 1997, we commented on the case of Cowie Industrial Developments Ltd. v. National Clearance Warehouse Ltd., a 1997 decision of Madam Justice Lax. The appeal to the Ontario Court of Appeal was decided in January 1999.
The case deals with sections 48 and 50 of the Landlord and Tenant Act. These sections allow a landlord to recover double the value of the goods if the tenant fraudulently removes them to prevent the landlord from distraining them for arrears of rent. The sections also allow the landlord to recover this penalty from anybody who wilfully or knowingly aids the tenant in doing so.
The trial judge found that the tenant in the Cowie case fraudulently and clandestinely removed the chattels. The chattels were worth approximately $500,000 and the trial judge held that the owner of the judgment-proof corporate tenant, Phil Wynne, and his son were each individually liable for payment of $1 million. The arrears at the time of the removal, including 3 months of accelerated rent, were $189,315.36 and the arrears of rent at the date of the trial were calculated to be $236,641.20.
Court of Appeal Issues
It seems that the tenant argued the case based solely on the findings of fact of the trial judge. This is almost always very dangerous. The Court made short shrift of those arguments: “We see no merit to the grounds of appeal raised by the appellants. In our view, the trial judge’s findings are reasonable and are entirely supported by the evidence.”
However, the Court on its own initiative asked a question that has always vexed us. Is the penalty restricted to double the value of the arrears at the time of the removal of the goods? In our advice section of our August 1997 newsletter, we suggested that if there were no arrears, then the punitive portion of the sections probably did not apply.
The Court noted that under the Act, distress had to be reasonable and that a landlord who takes an excessive distress was liable for damages. The Court also noted that it was impossible for a tenant to fraudulently remove chattels that could not have been subject to a landlord’s right of distress at the time of the removal.
In the actual case, the Court held that the landlord’s right to distrain could reasonably have extended to all of the goods removed by the tenant. When a landlord distrains it cannot be expected to determine the value of the goods with certainty.
This does not mean that the tenant could not have introduced better evidence of value at trial. It chose not do so and the Court was not going to aid it on appeal. The Court dismissed the appeal.
The Court dealt with the calculation of arrears of rent. We will reproduce what it said because the order of the sentences is important.
” … before the removal of the goods, there were rental arrears in the amount of $189,315.36. This amount included the rent owing under the acceleration clause contained in the lease.” So far, so good. “There were also continuing obligations under the lease. The arrears were calculated at trial at $236,641.20.”
What does this mean? Does the landlord only get to distrain for all rent that is due at the time of the distress or can the landlord include all rent that will be due in the future for the entire term of the lease or, in the alternative, to the date that arrears are quantified by a trial court? Everything stated by the Court prior to the last quotation would indicate the former alternative. The last quotation would suggest the latter.
We feel that the former interpretation makes more sense and we stand by our original advice given in our 1997 newsletter. If your client wants to move before the end of the term, ensure that the lease is in good standing, then move out the chattels.