A Tale Of Arson, Corporate Liability, And Insurance Covenants

In a very interesting decision, the British Columbia Court of Appeal has provided invaluable insight into the doctrine of corporate identification and the application of a landlord's covenant to insure commercial premises.

In Austeville Properties Ltd. v. Josan, 2019 BCCA 416, the court delved into issues regarding corporate liability and tenant protection after a downtown Vancouver restaurant was destroyed by fire.

The facts of this case are hard to believe.

The defendant Nandha Enterprises Ltd. (NEL) operated a Taco Del Mar restaurant franchise in British Columbia. Co-defendants, Manjeet Kaur Nandha and her husband Harjit Singh Nandha, were the directors of the company.

In November 2004, NEL leased commercial space in Vancouver, BC from the plaintiff landlord, Austeville Properties Ltd. and opened another Taco Del Mar restaurant on the premises. Manjeet and Harjit were both indemnifiers under the lease.

The lease contained a covenant that required the landlord to insure the premises against fire damage in terms of which the landlord agreed:

"To insure the building to its full insurable replacement value against loss or damage by fire. The expense of such insurance shall be borne as provided in paragraphs 12.01 and 12.02 hereof. To the extent that any loss or damage to the building is covered by insurance maintained by the landlord hereunder, the landlord releases the Tenant from any and all liability for such loss or damage whether or not the same is caused by or contributed to by or through the negligence of the Tenant or its servants and agents."

After the lease was executed, the landlord took out the required insurance.

Manjeet was responsible for running both restaurants. In the following years, the restaurants struggled and Manjeet and Harjit tried to sell them unsuccessfully in 2007.

At 2:30 am on February 13, 2008, the Vancouver restaurant exploded, resulting in vast property damage. The trial judge described the explosion as follows:

"The fire and impact of the explosion extended through the Building's entire ground floor and into the parking garage. The resulting blast wave blew out the windows of a London Drugs store across the street and a Holiday Inn which was more than 90 metres from the Building. Needless to say, the Building was extensively damaged. All of the tenants were evacuated and it took about 18 months for ground floor units to be repaired and ready for occupation".

Two days after the explosion, Manjeet was found...