Austeville Properties Ltd. v. Josan Et Al.: Exploding Taco Del Mar Makes For Interesting Application Of The Corporate Identification Doctrine And New Law On Insurance Covenants

Many in Vancouver will remember when the Taco Del Mar restaurant on West Broadway exploded in the early morning hours of February 13, 2008. That explosion resulted in damage to the office building which contained the Taco Del Mar and to buildings across the street. Austeville Properties Ltd. v. Josan et al., 2016 BCSC 1963 is an action that arose out of the efforts of the landlord's insurer to recover over $3 million paid out to the landlord for property damage repairs and business interruption losses arising from that explosion. The landlord's insurer brought a subrogated action in the name of the plaintiff landlord against its corporate tenant and several other individuals including the only two directors of the corporate tenant, Mr. and Mrs. Nandha.

The facts of this case are extraordinary. Mrs. Nandha and her husband owned a company, Nandha Enterprises Ltd. ("NEL"), which owned and operated two Taco Del Mar restaurants. The evidence was that Mrs. Nandha was unhappy with her life and believed that if she did not have to run both of NEL's restaurants, then she would have more time to spend with her children. As a result, the evidence was that she asked a friend (Mr. Josan) to set fire to the restaurant premises in order to get out of the lease with the landlord.

When the director of a small company, which leases premises from a landlord, conspires to set fire to the premises, should the corporate tenant be attributed with that director's act of conspiring to commit arson and, if so, should the corporate tenant be immune from tort liability by operation of an insurance covenant found in the lease?

This decision makes two key findings on these issues:

The attribution of the actions of a director to the company, even in a small and closely held company, is not automatic. Rather, the test for the corporate identification theory must be satisfied. Where the actions of the directing mind of a company were done outside the scope of his or her authority, and not for the benefit of the company, the actions of the director will not be attributed to the company; and Insurance covenants, and the corresponding tort immunity in favor of the beneficiary (here the tenant), can extend to intentional torts. There was uncontroverted evidence at trial that Mrs. Nandha conspired with Mr. Josan to set the fire. The trial judge accordingly found that Mrs. Nandha and the arsonist, Mr. Josan, conspired to set the fire.

The Plaintiff's claim against NEL was that...