



COURT OF APPEAL FOR ONTARIO

CITATION: 2249740 Ontario Inc. v. Morguard Elgin Ltd., 2015
    ONCA 605

DATE: 20150910

DOCKET: C59998

Feldman, Simmons and Miller JJ.A.

BETWEEN

2249740 Ontario Inc.

Plaintiff (Respondent)

and

Morguard Elgin Ltd. and Morguard Corporation

Defendants (Appellants)

J. Scott Maidment and Stephen Brown-Okruhlik, for the
    appellants

Ronald F. Caza and Anne M. Tardif, for the respondent

Heard: August 24, 2015

On appeal from the order  of Justice Marc R. Labrosse of
    the Superior Court of Justice, dated January 14, 2015, with reasons reported at
    2015 ONSC 299 (CanLII).

ENDORSEMENT

Factual Background

[1]

The motion judge granted summary judgment to the respondent tenant for
    breach of a commercial lease.

[2]

In September 2010, the parties entered into a lease of an historic
    building in Ottawa known as Grant House to renovate and operate a restaurant.
    The Commencement Date for the lease and payment of rent for the ten-year term
    was April 1, 2011. Article 3.03 of the lease provided, in part, that

[I]f the landlord is of the opinion that it will be unable to
    deliver possession of all of the Leased Premises before the expiration of 6
    months after the Commencement Date, (in the condition required hereby), the
    Landlord shall have the right to terminate this Lease upon written notice to
    the Tenant, whereupon neither party shall have any liability to the other

[3]

The context for the lease agreement was that Morguard intended to construct
    a commercial high-rise building on its property adjacent to Grant House and was
    seeking an anchor tenant for that project. Construction would only proceed if
    an anchor tenant were found. However, there was a risk that construction of the
    project would cause significant disruptions to the premises or business
    operations at Grant House, and this was reflected in various lease provisions.

[4]

By February 2011, Morguard had identified a potential anchor tenant for
    its proposed project, while the tenant had run into a number of difficulties, both
    regulatory and financial. Both parties wished to postpone the Commencement Date
    of the lease from April 2011. They made an oral agreement to postpone for at
    least a year.

[5]

They then entered into negotiations for a Lease Amendment Agreement. 
    Morguard secured its anchor tenant in October 2011. The lease amendment
    negotiations continued until December 2011, when Morguard advised in writing
    that it was terminating those negotiations. It later took the position that it
    was terminating the lease pursuant to article 3.03.

[6]

The motion judge granted summary judgment in favour of the tenant. He
    found that the parties had made an oral agreement in February 2011 to extend
    the Commencement Date either for one year if no anchor tenant was secured, or
    for three years, if one was secured by Morguard. In the motion judges view,
    this meant that once Morguard had secured an anchor tenant, the Commencement
    Date would be extended to 2014. He further found that there were acts of part
    performance which took the oral agreement outside the operation of the
Statute
    of Frauds
, R.S.O. 1990, c. S.19. He finally found that having agreed to
    extend the Commencement Date until 2014, Morguards termination under article
    3.03 was in bad faith as Morguard could not know in 2011 that it would not be
    able to deliver possession within six months of the new 2014 Commencement Date.

Discussion

[7]

With respect to the motion judge, in our view, his factual finding of
    the terms of the February 2011 oral agreement is not based on the evidence and
    must be set aside. There is evidence that the parties agreed to extend the
    Commencement Date for at least a year, but not that the extension would be
    one year if Morguard did not secure an anchor tenant for its high-rise project
    and three years if it did.

[8]

The impugned finding formed the basis for the motion judges legal
    conclusions. In particular, it formed the basis of the finding of bad faith as
    described above. On appeal, the respondent argued that the finding of bad faith
    could be upheld on the basis that the motion judge found that Morguards motive
    to terminate was because it no longer wished to negotiate an amended lease
    agreement, which was a bad faith motive. We do not agree that the motion judge
    made that finding as a stand-alone basis for his conclusion that Morguard
    terminated the lease in bad faith.

[9]

We also accept the submission of the appellants that the motion judge
    erred by basing his legal decision on the doctrine of part performance when
    that doctrine was not pleaded nor argued before him.

[10]

Finally,
    we were advised in oral argument that the reason the motion judge did not refer
    to the recently-decided leading case from the Supreme Court of Canada on good
    faith contractual performance,
Bhasin v. Hrynew
, 2014 SCC 71, [2014] 3
    S.C.R. 495, was that counsel decided that that case did not change the law as
    applicable on the facts of this case. Therefore, they did not bring the case to
    the motion judges attention. The result was that the motion judge was not able
    to analyze the legal issue based on the most recent articulation of the
    doctrine from the Supreme Court.

[11]

Having
    found that the decision of the motion judge granting summary judgment must be
    set aside, the next issue on appeal is whether this court should determine the
    issues of fact and law or send the matter back for a new summary judgment
    motion.

[12]

We
    are normally reluctant to send a matter back, given the time and expense
    involved. However, we are not able to decide the motion based on the record and
    argument to date. Neither side was able to articulate a clear and cogent
    analysis of the legal effect on the lease of the acts and agreements of the
    parties  in particular, whether the oral agreement of February, 2011 to extend
    the Commencement Date for at least a year had the effect of repudiating the
    lease, or whether the lease remained in effect with the April 1, 2011
    Commencement Date, under article 3.03 (the portion not quoted in these
    reasons), and, if so, whether Morguard was entitled to use article 3.03 to
    terminate in December 2011. There may also be other provisions of the lease
    that should be referred to. Without full argument and clear positions by the
    parties, it would be inappropriate for the court to make findings based on its
    own analysis.

[13]

In
    order to try to avoid the necessity of a fresh motion, we are prepared to
    entertain written submissions (maximum 5 pages) as to the proper legal result
    based on the finding that the parties made an oral agreement in February 2011
    to extend the Commencement Date for at least a year.

[14]

We
    will defer the decision regarding costs until we have had the opportunity to
    consider the written submissions. The appellants submission shall be made within
    10 days of these reasons, and the respondents within one week thereafter.

K. Feldman
    J.A.

Janet Simmons
    J.A.

B.W. Miller
    J.A.


