Executive Summary: Key Legal and Evidentiary Issues

• Assets belonging to a third party were seized to satisfy a judgment against a related company in commercial lease litigation.

• The trial judge dismissed the third party's opposition, relying on the close relationship between corporate entities.

• No formal lifting of the corporate veil was declared, but the trial judge effectively disregarded separate legal personalities.

• Court of Appeal emphasized that legal personality can only be pierced with proof of fraud, abuse of rights, or public order violation.

• The seizure was ruled unjustified, as the appellant had legally acquired the assets through insolvency proceedings.

• Appeal granted, the opposition upheld, and the seizure nullified due to insufficient legal grounds for enforcement against the third party.

Facts and outcome of the case

In 2023, a judgment from the Québec Superior Court ordered 9253-1383 Québec inc. to pay over $164,000 in unpaid rent and damages under a commercial lease. Although 9253 held the lease, the actual business operations were carried out by another company, 3963381 Canada inc. (396), which went into insolvency proceedings under the Bankruptcy and Insolvency Act.

When attempts to collect the judgment from 9253 failed, the landlords—Calloway Real Estate Investment Trust inc. and 3412237 Canada inc.—sought to seize property from Rodi Design inc., another corporation operating a furniture store under the same brand name in a different location. Rodi Design inc. objected to the seizure, arguing that it legally acquired the assets of 396 during insolvency proceedings or had purchased them in the ordinary course of business, and that it was a distinct legal entity from 9253.

The trial judge dismissed the opposition, finding that although the seized goods seemed to belong to Rodi Design inc., the close corporate links between Rodi Design, 9253, and 396—as well as the continued use of the “Rodi Design” brand—justified the seizure. The judge implied that the structure of the businesses and asset transfers undermined transparency in commercial relationships, a concept treated as a matter of public order.

On appeal, the Québec Court of Appeal overturned the decision. It reaffirmed that a party’s legal personality cannot be disregarded merely because it is closely related to another entity. The Court emphasized that Article 317 of the Civil Code of Québec requires clear evidence of fraud, abuse of rights, or a violation of public order to lift the corporate veil. None of these conditions were met. The Court also rejected the notion that lack of “transparency in business relations” constituted a breach of public order sufficient to justify the seizure.

Furthermore, the Court noted that the seized assets had been acquired by Rodi Design inc. through a valid court-approved insolvency process, and the previous judgment against 9253 could not be enforced against Rodi Design inc. simply due to shared ownership or branding.

The Court of Appeal allowed the appeal, reversed the trial decision, upheld Rodi Design inc.'s opposition to the seizure, declared the seizure null, and annulled the controlled judicial sale. Rodi Design inc. was awarded costs.