Case information

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Case summaries are prepared by the Office of the Registrar of the Supreme Court of Canada (Law Branch). Please note that summaries are not provided to the Judges of the Court. They are placed on the Court file and website for information purposes only.

In 1992, Wise Stores Inc. (Wise) purchased the entire Peoples chain from Marks and Spencer Canada Inc. (M & S). Wise went into debt for the full price. A new entity called Peoples Department Stores Inc. (PDS) was created with Wise holding all of its shares. The two corporations were operated separately. Because budgets and inventories were separate, buyers had to purchase often identical merchandise for each chain. That duplication was the source of many administrative errors. All this upheaval affected the group’s financial stability, causing both a reduction in sales volume and needless debt through the purchase of excess inventory. To deal with the growing problems, Respondent Lionel Wise, the principal director of the Wise and PDS group, approached David Clément, Wise’s vice-president for administration and finance, who proposed the integration of the management of the inventories of Wise and PDS into a single computer file. Around December 1993, the Respondent brothers submitted Clément’s proposal to the buyers. They saw it as the solution to their problem. Given how the proposal was received, the Respondent brothers accepted it without studying the indirect impact it could have. In short, they relied on Clément’s skills and decided that the proposal would be implemented as of February 1994.

The first real criticism came from certain suppliers who said they were concerned. They saw the new policy as an attempt to put PDS in debt for the benefit of Wise. Everyone continued, however, to do business with the group and several people decided to make their bills out in the name of the two corporations. In June 1994, the financial results of the group showed that Wise was $18,664,000 in debt to PDS. Respondent Ralph Wise, who had replaced his brother, Respondent Lionel Wise, was concerned and discussed the situation with Clément. Clément told him that the debt was in large part ($14 million) due to an accounting error that would be corrected in the near future. In December 1994, the Respondent brothers consulted insolvency experts. The two corporations declared bankruptcy in January 1995, retroactive to December 9, 1994. According to the assessment accepted by the trial judge, the debt Wise owed PDS since the joint inventory procurement policy was implemented in February 1994 amounted to $4,437,115 after adjustments. That was the figure accepted by the judge in establishing the share of liability of PDS’s directors.

All the parties appealed. In a related matter, Respondent Chubb Insurance Company of Canada, the Respondent brothers’ liability insurer, argued the absence of coverage for any award based on s. 100 B.I.A. The Court of Appeal allowed the Respondents’ appeals and dismissed the Appellant’s cross-appeal.