Austeville Properties Ltd. v. Josan et al.: Exploding Taco Del Mar Decision – B.C. Court Of Appeal Speaks On Corporate Attribution & Insurance Covenants In The Context Of Arson

Many in Vancouver will remember when the Taco Del Mar restaurant on West Broadway (the "Premises") exploded in the early morning hours of February 13, 2008. The explosion resulted in damage to the office building containing the Premises and to buildings across the street. The Premises' landlord's insurer commenced an action to recover amounts paid out to the landlord for property damage repairs and business interruption losses, in the amount of $3,000,000. The landlord's insurer claimed against the Premises' tenant - Nandha Enterprises Ltd. ("NEL") - and several other individuals including the only two directors of NEL, Mr. and Mrs. Nandha.

The Trial Decision

This matter proceeded to trial at the B.C Supreme Court in 2016 (Austeville Properties Ltd. v. Josan et al., 2016 BCSC 1963). Our Insurable Interest Bulletin on the trial result is located here: https://www.cwilson.com/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/

The facts of this case are extraordinary. Mrs. Nandha and her husband owned NEL which carried on a business operating two Taco Del Mar restaurants. Mrs. Nandha was unhappy with her life and believed that if she did not have to run both of NEL's restaurants, she would have more time to spend with her children. As a result, she asked a family friend, Mr. Josan, to set fire to the Premises in order to end NEL's lease. The trial judge found that Mrs. Nandha and Mr. Josan conspired to set the fire.

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?

At trial, the Honourable Mr. Justice Bowden dismissed the action by the landlord and subrogating insurer in finding the following:

In order to attribute Mrs. Nandha's conduct to NEL pursuant to the corporate identification doctrine, Mrs. Nandha must be a directing mind of NEL and the action taken by her must be: (a) within the field of operation assigned to him; (b) not totally in fraud of the corporation; and (c) by design or result partly for the benefit of the company. The actions of Mrs. Nandha were found to be outside the scope of her authority as a director of NEL because...