



COURT OF APPEAL FOR ONTARIO

CITATION: Parc Downsview Park Inc. v. Penguin Properties
    Inc., 2018 ONCA 666

DATE: 20180726

DOCKET: C64240

van Rensburg, Brown and Miller JJ.A.

BETWEEN

Parc Downsview Park Inc.

Applicant (Respondent/
Appellant by way of cross-appeal)

and

Penguin Properties Inc.

Respondent (Appellant/
Respondent by way of cross-appeal)

Anne Posno and Robert Trenker, for the appellant/respondent
    by way of cross-appeal

Jonathan Lisus and Zain Naqi, for the respondent/appellant
    by way of cross-appeal

Heard: April 16, 2018

On appeal from the judgment of Justice Thomas R. Lederer
    of the Superior Court of Justice, dated July 28, 2017, with reasons reported at
    2017 ONSC 4533 and supplementary reasons reported at 2017 ONSC 7079.

BROWN J.A.:

I.

OVERVIEW

[1]

This appeal concerns the validity and scope of an indemnity given by the
    appellant, Penguin Properties Inc. (Penguin), to the respondent and
    cross-appellant, Parc Downsview Park Inc. (PDP).

[2]

In 2010, the National Squash Academy Inc. (the Academy), as tenant,
    and PDP, as landlord, entered into a lease of premises in Downsview Park, in
    Toronto. The Academy defaulted on its obligations under the 2010 lease.

[3]

Negotiations ensued between the parties to arrive at a new lease. As
    described by the application judge at para. 2 of his reasons:

[PDP], as the landlord, made it known that if there was to be a
    further lease, it would require that a guarantor be found to indemnify the
    rental obligations of the [Academy]. [PDP] advised that it would not enter into
    an amended lease without this security. Mitchell Goldhar was approached and
    agreed to backstop the obligations of the [Academy] under a new lease.
    [Footnotes omitted.]

[4]

Mitchell Goldhar is a developer of commercial real estate. He regularly
    played squash at the Academy. Goldhar is the principal of Penguin.

[5]

The negotiations between the parties culminated in the execution of a lease
    of the premises dated July 9, 2012 for approximately eight years, although the
    lease actually was executed in December 2012 (the Lease). Contemporaneously, Penguin
    entered into an indemnity agreement with PDP dated July 9, 2012 (the
    Indemnity), again actually executed in December 2012.

[6]

PDP is a Crown corporation and a subsidiary of Canada Lands Company
    Limited (CLC).

[7]

Under the Indemnity, Penguin agreed as follows:

1. Throughout the Term of the Lease..., the Indemnifier
    [Penguin] will (i) promptly pay all Rent for the area of the Premises
    comprising approximately 12,721 square feet only, whether to the Landlord or
    anyone else; and (ii) indemnify and protect the Landlord from any losses or
    costs incurred by the Landlord (including legal fees) if the Tenant [the Academy]
    fails to pay the Rent in respect of the 12,721 square feet.

...

5.  The Indemnifier is not a mere guarantor, the Indemnifier
    is primarily responsible for the Tenants obligations for the payment of Rent
    in respect of the portion of the Premises comprising 12,721 square feet.

[8]

The area of 12,721 square feet represented about one-third of the total
    area leased by the Academy.

[9]

Starting in September 2013, the Academy defaulted on its obligations
    under the Lease to pay rent. As described in the application judges reasons,
    extensive negotiations ensued between the parties. They proved unsuccessful. In
    October 2015, PDP delivered a termination notice to the Academy. The latter
    commenced relief from forfeiture proceedings. However, when the court granted
    relief on the condition that the Academy pay-up arrears of rent and pay on-going
    rent, the Academy made a voluntary assignment into bankruptcy in February 2016.

[10]

In
    November 2016, PDP gave further notice of default to Penguin under the
    Indemnity. It then commenced this application seeking payment under the Indemnity
    of unpaid rent, future rent, and other costs and losses.

[11]

The
    application judge granted the application. He found that Penguin had breached
    the Indemnity and ordered it to pay PDP $788,603.45 on account of amounts
    owing to [PDP] up to June 12, 2017 under the terms of the indemnity agreement.

[12]

By
    its terms, the Lease did not expire until August 31, 2020.

[13]

Penguin
    appeals; it asks this court to set aside the judgment and convert the
    application into an action. PDP cross-appeals; it seeks to vary the judgment to
    include an order requiring Penguin to pay rent due from June 13, 2017 until
    August 31, 2020, less any rent it receives from new tenants during that period.

[14]

For
    the reasons that follow, I would dismiss Penguins appeal and allow PDPs
    cross-appeal.


II.

FIRST ISSUE: IS PENGUIN LIABLE UNDER THE INDEMNITY?

The issue stated

[15]

Penguin
    did not dispute that it executed the Indemnity. However, Penguins principal,
    Goldhar, deposed that during the summer of 2012 two PDP employees discussed
    with him the steps PDP planned to take to improve the Parks public exposure,
    to facilitate better access to the Park, and to install prominent signage along
    the large public roads bordering the Park. Goldhar regarded the statements made
    to him by the two employees as representations.

[16]

Penguin
    contends that since PDP never took any of the steps described by the two
    employees, the representations were negligently made and they turned out to be
    false, with the result that PDP breached pre-contractual, collateral
    representations upon which Penguin had relied in giving the Indemnity. Goldhar
    contended that had he known PDP did not intend to take those steps, Penguin
    would not have executed the Indemnity. Consequently, Penguin argues, its
    liability under the Indemnity is extinguished by reason of the
    misrepresentations PDP negligently made.

[17]

The
    application judge did not accept Penguins position. He found Penguin liable
    under the Indemnity. Penguin advances two grounds of appeal in respect of that
    finding: (i) the application judge erred by applying too rigorous a test in
    refusing to convert the application into a trial; and (ii) he applied the wrong
    test to determine whether PDP made a negligent misrepresentation upon which
    Penguin relied to enter into the Indemnity.

Disposing of the matter by way of application

[18]

Penguin
    submits, in essence, that it was unfair for the application judge to decide the
    dispute by way of application. In its view, the nature of the dispute required
    full production by way of affidavits of documents, examinations for discovery,
    followed by a trial. Penguin also contends it was unfair to decide the dispute
    in the face of refusals by PDP to produce certain documents.

[19]

I
    am not persuaded by this ground of appeal.

[20]

The
    suitability of using an application, rather than an action, to decide a contractual
    dispute depends upon the specific facts of the case, including the nature and
    extent of any factual dispute.

[21]

In
    the present case, the issue in dispute was a narrow one: Had two employees of
    PDP made misrepresentations to Goldhar upon which Penguin had relied in giving
    the Indemnity?

[22]

Penguin
    could not point to any document that contained a written representation by PDP.
    Nor could it point to any correspondence with PDP prior to the commencement of
    the application in which Penguin had taken the position that PDP had made oral
    misrepresentations. Instead, Penguin relied solely on Goldhars evidence that
    two PDP employees had made certain oral statements to him during two meetings
    in the summer of 2012 and those statements amounted to negligent misrepresentations.

[23]

In
    assessing Penguins argument, the application judge effectively accepted
    Goldhars evidence about what he had discussed with the two PDP employees
    during those summer meetings. In other words, he took Penguins case at its
    highest.

[24]

There
    was no unfairness to Penguin in proceeding in that fashion. The employment of
    the two PDP employees had come to an end in 2013. It therefore was open to
    either party to call those ex-employees as witnesses on the application under
    rule 39.03 of the
Rules of Civil Procedure
. Neither did.

[25]

Also,
    it is difficult to understand what further material evidence about the
    representations could emerge from a conventional discovery process when Penguin
    took the position it had relied on oral statements (for which there was no
    supporting documentation) and the application judge based his analysis on
    Goldhars evidence about the content of those statements.

[26]

Nor
    does PDPs refusal to produce certain documents on cross-examination detract
    from the fairness of the process. The issue was whether PDP employees had made
    an oral representation to Goldhar/Penguin before the execution of the Indemnity
    and, if they had, the content of the representation. The information PDP
    refused to produce on cross-examination, as described by Penguin in its factum
[1]
,
    had no apparent relevance to that issue. As well, it was open to Penguin to
    move on PDPs refusals; it made the tactical decision not to do so.

[27]

Accordingly,
    I see no unfairness resulting from the application judge determining the
    contractual dispute by way of application instead of directing a trial. As
    well, an application provided an expeditious and cost-effective means to
    determine the dispute on its merits:
Maurice v. Alles
, 2016 ONCA 287, 130
    O.R. (3d) 452, at para. 32.

The application judges finding that PDP did not make any
    representation

[28]

Penguin
    submits the application judge applied the wrong legal test to determine whether
    PDP made a pre-contractual misrepresentation.

[29]

At
    para. 37 of his reasons, the application judge set out the legal principles he
    applied to determine whether PDP had made a misrepresentation:

A party alleging misrepresentations must particularize the
    facts on which it relies. It must set out precisely what each allegation of
    misrepresentation is, when the particular incident occurred, what was alleged
    to have been said, by whom and to whom. A high level of specificity is
    required. General statements cannot give rise to a binding representation. A
    claim of misrepresentation should be dismissed when the plaintiff has produced
    no evidence of the alleged representations, apart from the general statements.
    There is a need for specific facts as to the statements allegedly made by
    [the defendant].

[30]

I
    am not persuaded this was an inaccurate summary of the legal principles
    applicable in the circumstances of this case. Penguin bore the burden of
    establishing who made a representation, when, where, and its content. The
    application judge required nothing more.

[31]

Penguin
    further submits the application judge erred in finding that no
    misrepresentation had been made. Penguin argues that Goldhars evidence at
    para. 20 of his affidavit demonstrated PDP had made a representation. There, he
    deposed:

[The PDP employee] acknowledged the importance of my suggested
    improvements and confirmed PDPs intention to add, replace and make overall
    improvements to inadequate signage in and around the Park as a priority.

[32]

The
    application judge was not persuaded that that evidence established an
    actionable misrepresentation. Instead, he found, at para. 31, that [t]aken on
    its own, the evidence of Mitchell Goldhar is not demonstrative of any negligent
    misrepresentation. At paras. 32, 37 and 39 of his reasons, he explained why he
    reached that conclusion:

All that can be drawn from the affidavit of Mitchell Goldhar is
    that there were meetings at which the status of the development and some
    general themes and ideas were discussed in order that Mitchell Goldhar could be
    better informed in determining whether he wished to enter into the indemnity
    agreement and, presumably, the arrangement under which he provided the line of
    credit to [the Academy].



In this case there is no substantive content to the
    representations alleged to have been made to Mitchell Goldhar (Penguin
    Properties Inc.). There were no specific facts about the types of signage, the
    size or location of the signs, their design, the information they were to
    display, or who would pay for them. There is no evidence that any specific
    signage was ever discussed or agreed to.



[Penguin] cannot rely on the Corporate Plan Summaries as
    demonstrative of negligent misrepresentation. They are publicly available
    information documents about [PDPs] future plans. They are not and cannot be
    relied upon as enforceable representations.

[33]

Ample
    evidence supported those findings; they are not tainted by any misapprehension
    of the evidence or palpable and overriding error.

[34]

In
    addition, the application judge relied on the following evidence: (i) the
    parties were sophisticated  Goldhar is one of Canadas most successful
    developers of commercial real estate; (ii) Penguin acknowledged that the
    representations it alleged were made orally and not in writing; (iii) there was
    not a single piece of correspondence produced by Penguin that referred to any
    of the oral representations asserted; (iv) clause 7 of the Indemnity stated it
    could only be modified in writing, signed by both the Indemnifier and the
    Landlord; (v) by its terms the Indemnity was absolute and unconditional; and
    (vi) on the issue of which party relied on whom, the Indemnity began with the
    language, [i]n order to induce the Landlord to sign the agreement to lease
    between the Landlord and [the Academy] as Tenant , the Indemnifier agrees with
    the Landlord that

[35]

Taken
    together, that evidence provided a sound evidentiary basis for the application
    judges finding that Penguin had not established PDP made some collateral,
    pre-contractual representation which, if breached, would relieve it of its
    obligations under the Indemnity.

[36]

Accordingly,
    I would dismiss Penguins appeal from the judgment that it had breached the
    Indemnity.

III.

THE APPEAL AND CROSS-APPEAL REGARDING THE QUANTUM OF LIABILITY UNDER THE
    INDEMNITY

The issues stated

[37]

The
    application judge found Penguin liable to pay to PDP under the Indemnity the
    sum of $788,603.45, made up of net unpaid rent until June 12, 2017, together
    with restoration costs, legal fees, and other losses. The parties were unable
    to settle the application judges order because they disagreed over how the
    application judge had calculated the amount payable under the Indemnity. The
    application judge gave supplementary reasons explaining his calculation: 2017
    ONSC 7079.

[38]

On
    appeal, both parties take issue with aspects of the application judges calculations.

[39]

Penguin
    submits the application judge erred in finding it was responsible for: (i)
    restoration costs of $272,856.34; and (ii) the full amount of the legal costs
    incurred by PDP as a result of the Academys failure to pay rent when, it
    contends, the Indemnity limited its obligation to only about one-third of such
    costs.

[40]

On
    its cross-appeal, PDP argues the application judge erred in failing to require
    Penguin to pay amounts for rent falling due after June 12, 2017 through the
    stated end of the Leases term on August 31, 2020.

Restoration costs and legal fees

[41]

After
    the Academy vacated the premises, PDP incurred costs to restore them to their
    pre-Lease condition. Penguin submits the application judge erred in awarding
    PDP any part of the restoration costs because the Academys obligation to
    remove leasehold improvements had nothing to do with its obligation to
    indemnify PDP for the failure of the Academy to pay rent.

[42]

I
    am not persuaded by this submission.

[43]

Clause
    1 of the Indemnity in part required Penguin, [t]hroughout the Term of the
    Lease, to indemnify and protect the Landlord from any losses or costs
    incurred by the Landlord (including legal fees) if the Tenant fails to pay the
    Rent in respect of the 12,721 square feet. The application judge held that the
    restoration costs were costs incurred as a result of [the Academys] failure
    to pay rent.

[44]

Absent
    the existence of an extricable question of law or a palpable and overriding
    error, the application judges interpretation and application of the Indemnity
    is entitled to deference:
Sattva Capital Corp. v. Creston Moly Corp.
,
    2014 SCC 53, [2014] 2 S.C.R. 633, at paras. 51-54; and
Ledcor Construction
    Limited v. Northbridge Indemnity Insurance Co.
, 2016 SCC 37, [2016] 2
    S.C.R. 23, at para. 21. Penguin acknowledges that whether clause 1 of the
    Indemnity covered restoration costs is a question of mixed fact and law
    attracting the deferential standard of review.

[45]

To
    answer that question, the application judge considered the events both before
    and after the Academy defaulted in paying rent, including its ultimate
    assignment in bankruptcy. At para. 47 of his reasons, he stated:

The lease required that the tenant, prior to the end of the
    term of the lease, remove all of its fixtures including the squash courts. If
    the tenant failed to comply with this requirement the landlord was free to
    undertake this work at the cost of the tenant. Hence the cost of this work
    represents a cost incurred as a result of the failure of the plaintiff to pay the
    requisite rent (see: Lease dated the 9
th
day
    of July, 2012, Between: Parc Downsview Park Inc. and National Squash
    Academy Inc. clause 9.4)

[46]

I
    see no palpable and overriding error in that conclusion. It is a reasonable
    interpretation and application of clause 1 of the Indemnity to the specific
    facts of this case.

[47]

Penguin
    advances an alternative submission: it argues the application judge erred in
    finding it liable for the full amount of restoration costs and legal fees.
    Penguin contends that, under the Indemnity, it should only be liable for the
    same proportion of those costs as it was liable for unpaid rent  that is,
    about one-third.

[48]

I
    do not accept that submission.

[49]

While
    the first part of clause 1 of the Indemnity limits Penguins liability to all Rent
    for the area of the Premises comprising approximately 12,721 square feet
only
 (emphasis added), the second part uses
    broader language, requiring Penguin to indemnify PDP for 
any
losses or costs incurred by the Landlord
    (including legal fees) if the Tenant fails to pay the Rent in respect of the
    12,721 square feet (emphasis added).

[50]

I
    see no reversible error in the application judges interpretation of the second
    part of clause 1 as covering the full amount of 
any
losses or costs (emphasis added), not a
pro rata
share. The application judges interpretation is one
    reasonably available on the language of clause 1 of the Indemnity:
Atos IT
    Solutions v. Sapient Canada Inc.
, 2018 ONCA 374, 140 O.R. (3d) 321, at
    paras. 85-86. Accordingly, I see no basis for appellate intervention.

[51]

I
    would dismiss Penguins appeal.

Future rent

[52]

On
    its cross-appeal, PDP submits that the application judge erred by failing to
    award it amounts for rent due under the Lease from June 12, 2017 until the end
    of the stated term of the Lease, on August 31, 2020. PDP argues the application
    judge erred by failing to give effect to the plain language of the Indemnity.
    Instead, he examined PDPs entitlement to future rent from the perspective of
    its obligations under the Lease as a landlord to its tenant, the Academy,
    rather than its rights under the Indemnity as against its indemnifier, Penguin.
    According to PDP, that mistaken approach led the application judge to find,
    erroneously, that PDP owed Penguin a duty to mitigate its losses for rent due
    after June 12, 2017. The application judges failure to give effect to the
    plain language of the Indemnity constituted an extricable error of law.
    Alternatively, PDP submits it amounted to a palpable and overriding error.

[53]

I
    am not persuaded the application judge committed an error of law. However, I do
    accept that he made a palpable and overriding error. I would set aside his
    conclusion that Penguin is not required to pay the rent due until the end of
    the stated term.

(a)

Standard of review

[54]

Although
    PDP submitted in broad terms that the application judge erred in respect of an
    extricable question of law, it did not specifically identify the extricable
    legal question. However, its factum appears to suggest the question of law
    concerns whether PDP had a duty under the Indemnity to mitigate its lost rent.

[55]

As
    the Supreme Court of Canada reminded courts in
Teal Cedar Products Ltd. v.
    British Columbia
, 2017 SCC 32, [2017] 1 S.C.R. 688, at para. 47,
    characterizing the nature of the specific question before the court requires delicate
    consideration of the narrow issue actually in dispute. That is because [t]here
    is no bright-line distinction between questions of law and those of mixed fact
    and law:
Ledcor Construction
, at para. 41. The key difference
    between a question of law and one of mixed fact and law is the degree of
    generality or precedential value of the question at issue:
Sattva
, at
    para. 51; and
Ledcor Construction
, at para. 41.

[56]

However,
    [i]n general  contractual interpretation remains a mixed question, not a
    legal question, as it involves applying contractual law (principles of contract
    law) to contractual facts (the contract itself and its factual matrix):
Teal
    Cedar Products
, at para. 47. As a result, while legal questions are those
    about what the correct legal test is, courts must be alive to the efforts of
    counsel to strategically frame a mixed question as a legal question:
Teal
    Cedar Products
, at para. 45.

[57]

I
    regard the question of whether PDPs claim under the Indemnity is subject to an
    obligation to mitigate rental losses as a question of mixed fact and law. The
    resolution of the question primarily requires a consideration of the language
    of the Indemnity, read within the factual matrix of, amongst other matters,
    the circumstances surrounding the concurrent execution of the Lease. That is an
    issue specific to the facts of the case, lacking any degree of generality. As a
    result, the deferential standard of review applies.

(b)

Analysis

[58]

When
    that standard of review is applied, I regard the application judges conclusion
    that PDP was not entitled under the Indemnity to rent until the end of the term
    as a palpable and overriding error. Let me explain why.

[59]

The
    application judge started his analysis by considering the provisions of the
    Indemnity dealing with Penguins obligation to pay rent. He recognized that
    under the first part of clause 1, Penguin was required [t]hroughout the Term
    of the Lease to promptly pay all Rent for the 12,721 square foot portion of
    the premises. He also acknowledged that the absolute nature of the Indemnity
    was supported by the language of clause 2, which states:

Even if there is an Early Termination, the Indemnifier will
    remain obligated under this Agreement throughout the Term as though the Early
    Termination had not occurred. An Early Termination means a disaffirmance,
    disclaimer, repudiation, rejection or termination of the Lease (as a result of
    court proceedings or otherwise), or a surrender of the Lease which the Landlord
    did not accept in writing, which occurs prior to the originally specified
    expiry date of this Term.

[60]

The
    application judge then turned to consider whether PDP was obligated under the
    Indemnity to mitigate its losses for rent due after June 12, 2017. In so doing,
    the application judge considered another term of the Indemnity  the last part
    of clause 3  which provides:

The Indemnifiers obligations will not be affected by any
    repossession of the Leased Premises by the Landlord, except that if the
    Landlord re-lets the Leased Premises then the payments received by the Landlord
    (after deducting all costs and expenses of repossessing and reletting the
    Leased Premises) will be credited by the Landlord against the Indemnifiers
    obligations under this agreement.

[61]

The
    application judge held this language, taken on its own, did not demonstrate an
    obligation owed by PDP to mitigate.

[62]

However,
    at this point in his analysis, the application judge shifted the focus of his
    analysis. He brought into play the second part of clause 1 of the Indemnity
    dealing with any losses or costs incurred by PDP, other than rent. From that,
    he segued into PDPs duty, as landlord, to mitigate its losses under the Lease.
    The application judges reasoning can be seen in the following portion of para.
    13 of his supplementary reasons:

As noted above the intention of the Indemnification Agreement
    is to indemnify and protect the Landlord for any losses or costs incurred as
    a result of the Tenants failure to pay rent. There is nothing that suggests an
    intention that the Landlord is to gain from the default by being able to
    collect rent from two sources attributable to the same property. I return to
    the idea that is at the centre of the decision in
Highway Properties
[
Ltd. v. Kelly, Douglas and Co. Ltd.
, [1971] S.C.R. 562]
: a lease is a
    commercial contract. In a commercial setting where a contract is breached there
    is an obligation to mitigate. In the circumstances of this Indemnity Agreement,
    where the Landlord is asserting a right to collect damages beyond the
    termination of the lease and beyond the repossession of the property (the
    return of the estate) it is appropriate and consistent with the Indemnity
    Agreement that the Landlord is obliged to mitigate.

[63]

With
    respect, that analysis discloses a palpable and overriding error. In para. 12
    of his supplementary reasons, the application judge interpreted clause 3 of the
    Indemnity as disclosing no obligation on PDP to mitigate its rental losses. By
    then proceeding to depart from the plain language of the Indemnitys provisions
    dealing with rent, the application judge incorrectly imported into his
    consideration of Penguins liability under the Indemnity the quite separate
    issue of any mitigation duties PDP might owe the Academy, as tenant, under the
    concurrently executed Lease.

[64]

There
    was no language in the Indemnity that supported making such a link. As well, the
    language of the Indemnity did not impose a duty on PDP to mitigate lost rent.
    On the contrary, its terms provided otherwise: the Indemnity was absolute and
    unconditional; the Early Termination of the Lease did not relieve Penguin of
    its obligations as indemnifier; and those obligations continued throughout the
    Term as though the Early Termination had not occurred. With respect, the application
    judge erred by, in effect, reading into the Indemnity a duty to mitigate its
    claim for lost rent which ran counter to the express language of the Indemnity.

[65]

The
    application judges reasoning appeared driven, in part, by a concern that PDP
    might gain from the default by being able to collect rent from two sources
    attributable to the same property. However, clause 3 specifically contemplates
    such an eventuality: it contains language limiting the risk of double-recovery
    by providing that payments from a new tenant are to be credited against the Indemnifiers
    obligations under this agreement. As well, the extensive evidence filed by PDP
    about its efforts to re-let the premises included an explanation of the credit
    it had given to Penguin for rent received from a new tenant of part of the
    premises.

[66]

I
    conclude, respectfully, that the application judge made a palpable and
    overriding error when interpreting the Indemnity by reading into it a
    limitation on PDPs entitlement that ran counter to the documents plain
    language.

[67]

In
    her dissent, my colleague disagrees with this result. Her disagreement is based
    on the view that under the Indemnity Penguin should not be liable for amounts
    of future rent if they are avoidable by PDP: Dissent, at para. 91. I have reached
    a different conclusion. I would venture that our disagreement rests on our
    contrasting assessments of the factual matrix in which the Indemnitys language
    must be interpreted.

[68]

As
    the application judge stated in his reasons, following the Academys default
    under the initial 2010 lease, PDP advised that it would not enter into an
    amended lease without the security of a guarantor to indemnify the Academys
    rental obligations. PDPs insistence on such an indemnity, in light of the
    Academys initial default, is reflected in the Indemnitys opening language,
    which states: In order to induce the Landlord [PDP] to sign the agreement to
    lease  [Penguin] agrees with [PDP] that 

[69]

The
    prior default by the Academy is a key element of the factual matrix in which
    the Indemnity arose. It explains why the terms of the Indemnity  accepted by
    Penguin, a sophisticated commercial actor  impose on the indemnifier broad,
    strict, and onerous obligations. To use the vernacular, having been burned once
    by its tenant, PDP was not prepared to be burned again. The onerous language of
    the Indemnity operated as the means by which PDP could ensure that it would not
    be left holding the proverbial bag in the event the Academy defaulted a second
    time, which it did. To interpret the language of the Indemnity as subjecting
    PDP to an implied duty to mitigate future rent would fail to give effect to
    that key aspect of the factual matrix. It could result in a situation where PDP
    is left holding the bag  a result contrary, in my view, to the express
    language of the Indemnity.

[70]

Accordingly,
    I conclude that PDP is entitled under the Indemnity to payment by Penguin for
    rent due
during
the period from June 12, 2017 until
    August 31, 2020, subject to the credit that clause 3 requires be given for rent
    obtained from a new tenant.

IV.

DISPOSITION

[71]

For
    the reasons set out above, I would dismiss the appeal. I would allow the
    cross-appeal to the extent of varying
para
. 3 of the
    Judgment to include an order requiring Penguin to pay PDP future amounts in
    respect of Rent until August 31, 2020, subject to the credit for rent received
    from any other person as provided for by clause 3 of the Indemnity.

[72]

In
    accordance
with

the amounts
    agreed upon by the parties, I would award PDP its costs of the appeal and
    cross-appeal fixed in the amount of $20,000, inclusive of disbursements and
    applicable taxes.

David
    Brown J.A.
I agree. B.W. Miller J.A.


van Rensburg J.A. (Dissenting):

[73]

I have read the reasons of Brown J.A. and agree
    with the result and his reasons for dismissing the appeal. With respect, I do
    not agree with my colleagues proposed disposition of the cross-appeal. I would
    dismiss the cross-appeal for the following reasons.

THE DECISION BELOW

[74]

In its application PDP claimed the following
    against Penguin: rent and interest due and owing under the Lease and Indemnity;
    an amount for losses incurred by it which were subject to indemnification under
    the Indemnity; and an order that Penguin pay all future amounts in respect of
    rent pursuant to the Lease and Indemnity as such amounts become due.

[75]

The application judge, in his first set of
    reasons, addressed the first two claims. He awarded an amount for rent up to
    June 12, 2017 (the date of judgment), less rent received, for the 12,721 square
    feet, an amount for restoration costs in respect of the entire leased premises,
    and legal and bailiff costs. He did not address the claim for future amounts of
    rent which would fall due under the Indemnity after June 12, 2017 for the
    balance of the eight year Term. Indeed, the parties did not argue the question
    of future rent at the time of the original hearing, and the application judge
    heard additional submissions on that issue in the context of an attendance to settle
    the terms of the application judges order.

[76]

The application judge refused to make an order
    that Penguin pay all future amounts in respect of rent pursuant to the
    Indemnity, as such amounts become due. He rejected the argument that this was
    implicit in his first set of reasons. According to his interpretation of the
    Indemnity, PDP could not recover avoidable losses  it had a duty to mitigate
    its claim for ongoing rent by taking reasonable steps to re-let the space. He
    concluded that the evidence did not permit him to determine whether PDP had
    mitigated its claim for rent for the balance of the Term, and that it was
    impossible for him to go further.

[77]

Contrary to what PDP argued in its cross-appeal,
    the application judge did not dismiss its claim for ongoing rent under the
    Indemnity. The application judge refused to make an open-ended order that would
    require Penguin to pay the monthly rent irrespective of what PDP chooses to do
    with the premises, and only subject to a credit for any payments PDP may receive
    (if any) from re-letting. The effect of his decision is that Penguins
    obligations under the Indemnity in respect of rent continue for the balance of
    the Term (until August 31, 2020), but subject to a duty on the part of PDP to
    take reasonable steps to mitigate its damages.

[78]

I will explain why I have concluded that the
    application judges determination of the claim for ongoing rent, as part of
    PDPs claim under the Indemnity, reveals no reversible error.

DISCUSSION

(1)

The conclusion that PDP has a duty to mitigate
    its claim for rents

[79]

After rejecting PDPs contention that he had
    already determined the issue in its favour, the application judge began his
    analysis by discussing the question of mitigation in the context of a lease. He
    referred to
Highway Properties Ltd. v. Kelly, Douglas and Co.
, [1971] S.C.R. 562, and its recognition that a lease is a
    commercial contract, as well as a grant of an estate in property. He referred
    to a passage in that case that mitigation is involved where there is a re-letting
    on the tenants account. He concluded this part of his reasons, at para. 10,
    by stating that a re-letting of the property subsequent to retaking possession
    may be to the benefit of the tenant and demonstrative of mitigation. There can
    be no quarrel with this statement or the summary of the law that precedes it.

[80]

The application judge then went on to consider
    the terms of the Indemnity itself. He referred to clause 3 of the Indemnity,
    and accurately noted, at para. 12, that, take
n on its own this does not
    demonstrate an obligation to mitigate. It suggests only that if the damage to
    the Landlord is mitigated by re-letting that benefit is to accrue to the
    tenant.
Again, there is no error. The fact that PDP is given
    a credit for amounts it receives
if
it re-lets
    the space is distinct from whether it has a
duty
to do so. And I did not understand PDP to argue that this clause is
    determinative of the issue.

[81]

The substance of the application judges
    analysis of whether there was a duty to mitigate in respect of rents under the
    Indemnity is contained in para. 13 of his reasons where he stated:

The lease includes a provision requiring the
    tenant at the end of the term to remove all of the fixtures "including
    without limitation the squash courts" at its expense or to pay the
    Landlord its costs of doing so. The Landlord has removed the squash courts and
    returned the facility to a state where it can be leased for another purpose.
    The award made on the application includes those costs. This being the case the
    position of the Landlord is that having repossessed the property and having
    recovered the cost of returning it to a leasable state it is now able to
    re-lease the property to another tenant and at the same time collect the rent
    on the pre-existing lease from the Respondent. As noted above the intention of
    the Indemnification Agreement is to "indemnify and protect the Landlord
    for any losses or costs" incurred as a result of the Tenant's failure to
    pay rent. There is nothing that suggests an intention that the Landlord is to
    gain from the default by being able to collect rent from two sources
    attributable to the same property. I return to the idea that is at the centre
    of the decision in
Highway Properties
: a lease is a commercial
    contract. In a commercial setting where a contract is breached there is an
    obligation to mitigate. In the circumstances of this Indemnity Agreement, where
    the Landlord is asserting a right to collect damages beyond the termination of
    the lease and beyond the repossession of the property (the return of the
    estate) it is appropriate and consistent with the Indemnity Agreement that the
    Landlord is obliged to mitigate. The Landlord cannot step away from the proposition
    that it seeks damages beyond the return of the estate. It has reduced the
    amount claimed for rent after the termination of the lease and the repossession
    of the property by the value of the rent it has received from new tenants. It
    has obtained an award of such damages being the cost of restoring the property.
    Those costs extended beyond the end of the lease

[82]

Here, the application judge considered the duty
    to pay rent under the Indemnity in the context of the Indemnity as a whole and
    the factual matrix of the Lease, PDPs conduct in terminating the lease and
    retaking possession, and its claim under the Indemnity for restoration costs.
    He was clearly motivated by the commercial unreasonableness or double
    recovery that would occur if PDP were permitted to obtain both the cost to
    restore the entire premises so that it could be re-let as part of its
    indemnified losses, and rent for the balance of the Term without having to
    re-let the premises. This is the substance of his conclusion that there was a
    duty to mitigate.

[83]

I disagree with my colleague that the
    application judge made a palpable and overriding error in his analysis in this
    paragraph by incorrectly [importing] into his consideration of Penguins
    liability under the Indemnity the quite separate issue of any mitigation duties
    PDP might owe the Academy, as tenant, under the concurrently executed Lease.

[84]

First, I do not read the application judge as in
    any way saying that PDPs obligation to mitigate its claim for rents under the
    Indemnity followed from the fact that it may have had an obligation to mitigate
    under the Lease vis-à-vis the tenant. The application judge did not fail to
    recognize that there was a difference between the mitigation duties owed under
    the Lease and the Indemnity. His attention was firmly on the question of
    whether, under the Indemnity, PDP had a duty to mitigate by making reasonable
    efforts to re-let the subject space.

[85]

Second, there was nothing wrong with the
    application judge considering the terms of the Lease in his interpretation of
    the Indemnity, which provided for the indemnification of PDP for the tenants
    defaults under the Lease. I would go so far as to say that it would have been
    an error for the application judge to have ignored the Lease.

[86]

The Indemnity was provided to PDP as an
    accommodation
[2]
,
    expressly to induce PDP to sign the Lease with the Academy. The Lease and the
    claims available to PDP under the Indemnity after the tenants default, were
    part of the factual matrix relevant to the determination of whether PDP was
    required to mitigate, by attempting to re-let the space, in its claim for rent
    under the Indemnity. The application judge noted that PDP was seeking damages
    beyond the return of the estate, that it had terminated the Lease,
    repossessed the property, received rent from new tenants, and that it [had]
    obtained an award of such damages being the cost of restoring the property.
    These factors informed his conclusion that in the circumstances of this
    [Indemnity], where the Landlord is asserting a right to collect damages beyond
    the termination of the lease and beyond the repossession of the property (the
    return of the estate) it is appropriate and consistent with the [Indemnity]
    that the Landlord is obliged to mitigate.

[87]

The application judges analysis gave effect to
    the whole of the Indemnity. His prior determination that PDP was entitled to
    the cost of restoring the whole of the leased property as part of its indemnity
    for losses was an important consideration. In his first set of reasons, the
    application judge concluded that the losses that PDP was entitled to recover as
    damages under the Indemnity included $272,856.34 in restoration costs it had
    incurred under article 9.4 of the Lease. These had been characterized by PDPs
    deponent as costs and expenses incurred in order to re-possess and re-let the
    Leased Premises, and removal and restoration worknecessary to enable PDP to
    lease the space to a new tenant. It would be inconsistent for PDP to claim and
    recover its restoration costs as losses under the Indemnity, and, if it so
    chose, to leave the premises vacant while continuing to collect rent under
    the Indemnity. This was the central point of the application judges analysis
    which resulted in an interpretation of the Indemnity that was both internally
    consistent and commercially reasonable.

[88]

I also disagree with my colleague that the
    application judges interpretation of the Indemnity is contrary to its express
    language. The Indemnity does not expressly provide for PDP to recover rents
    that it might avoid through mitigation. The application judge recognized that
    there is typically a duty to mitigate in a commercial contract. The duty to
    mitigate recognizes the rule in breach of contract cases that the defendant
    cannot be called upon to pay for avoidable losses which would result in an
    increase in the quantum of damages payable to the plaintiff:
Michaels
    v. Red Deer College
, [1976] 2 S.C.R. 324, at para. 9. See
    also
410784 Ontario Limited v. Little Zinger Inc. (Corktown Esso)
, 2016 ONCA 90, at para. 48.

[89]

The reference in clause 3 to the Indemnity being
    absolute and unconditional does not itself preclude a duty to mitigate or,
    said otherwise, authorize PDP to recover avoidable losses under the Indemnity.
    See, for example,
Midland Plaza Inc. v. Midland Medical Services Inc
., 2015 ONSC 7608, at paras. 9 and 54, where the indemnified
    landlord had a duty to mitigate under an absolute and unconditional indemnity
    and
Jens Hans Investment Co. v. Bridger
, 2004
    BCCA 340, 29 B.C.L.R. (4th) 1, where conduct of the landlord that materially
    increased the risk of default under the lease was a defence under an indemnity
    that was absolute and unconditional.

[90]

Here, the absolute and unconditional language
    of the Indemnity is followed by a number of specific circumstances involving
    dealings between PDP and the tenant, which would not affect the Indemnifiers
    obligations, and would remove some of the usual defences Penguin might
    otherwise raise as a surety for the tenants obligations. Interpreting the
    Indemnity as precluding the duty to mitigate because of the absolute and
    unconditional language would be inconsistent with the
expressio
    unius est exclusio alterius
principle of interpretation.
    The principles of interpretation applicable to indemnity clauses,
which
    entail a partys assuming responsibility and giving up defences that might
    otherwise be available, work against broad application and against general,
    wide scopes of protection: Harvey M. Haber, Kenneth A. Beallor,
Landlords
    Rights and Remedies in a Commercial Lease: A Practical Guide,
2nd ed.,
    (Toronto: Thomson Reuters, 2017), at p. 319. Su
reties,
    including indemnitors, are favoured creditors in the eyes of the law, whose
    obligations should be strictly examined and strictly enforced:
Manulife
    Bank of Canada v. Conlin
, [1996] 3 S.C.R. 415, at para. 10;
Guarantee
    Co. of North America v. Resource Funding Ltd.
(2008), 55 B.L.R. (4th) 68
    (Ont. S.C.); and
Richview Investments Inc. v. Dynasty Social Club
(1997)
,
29 B.C.L.R. (3d) 348 (B.C.C.A.), at para. 33.

[91]

I also do not regard the obligation under the
    Indemnity to pay rent throughout the Term as though the Early Termination had
    not occurred as clear wording that rules out a duty to mitigate. This wording
    simply sets out the scope of the obligation to indemnify for lost rent and
    provides that PDP has an ongoing right to demand rent from Penguin even after
    Early Termination has occurred. It does not however answer the question of
    whether Penguin, as indemnifier, would be liable for such amounts if they are
    avoidable by PDP. And the fact that there were separate obligations to
    indemnify for rent and losses does not aid in the analysis. Although
    characterized as rent what PDP is claiming here is its future cash flow. Both
    obligations  to pay rent for the balance of the Term, and to pay PDPs losses
     are part of the same Indemnity which requires Penguin to respond in the place
    of the tenant.

[92]

For these reasons I would not interfere with the
    application judges conclusion that PDP had and continues to have a duty to
    mitigate by making reasonable efforts to re-let the subject space, in respect
    of its claim for rent under the Indemnity. His interpretation took into
    consideration all appropriate factors including the character of the Indemnity
    as a commercial agreement which ordinarily would be subject to a duty to
    mitigate, the language of the Indemnity, the factual matrix (including the
    Lease and the circumstances leading to the claim under the Indemnity), and the
    fact that PDP had claimed and was entitled under the Indemnity to its costs to
    restore the premises for the express purpose of re-letting.

(2)

The application judges determination of the
    mitigation issue

[93]

PDP also argues in its cross-appeal that the
    application judge erred in his determination of the mitigation issue. PDP says
    that the application judge unreasonably rejected its evidence on mitigation
    with respect to the claim going forward, when he had accepted, based on the
    same evidence, that reasonable mitigation had occurred in relation to the claim
    for rent up to June 12, 2017.

[94]

There are two points to make here. First, PDPs
    position on this issue again appears to reflect a misunderstanding of the
    application judges decision. He did not dismiss PDPs claim for future rent
    under the Indemnity after rejecting its mitigation evidence. Nor did he
    preclude PDP from continuing to demand and to recover such amounts. He simply
    refused to determine the issue. When the application was heard, the space was
    rented, and some rental income was applied to reduce Penguins obligations to
    pay rent under the Indemnity. As the application judge noted, at para. 15, it
    would be impossible for him to go further to determine whether, going forward,
    the loss of rent to the end of the Term would be unavoidable.

[95]

Second, it is not for this court to reassess the
    evidence that was before the application judge. Typically, a judges decision
    with respect to mitigation is a finding of fact entitled to deference absent a
    palpable and overriding error:
Hav-a-Kar Leasing Ltd. v.
    Vekselshtein
, 2012 ONCA 826, at para. 57. Here, PDP put
    forward evidence of steps taken in an effort to re-let the space, which had to
    date only resulted in limited rental income from use of part of the space. The
    fact that there was adequate mitigation in the past did not necessarily
    determine mitigation going forward. The application judge was entitled to
    conclude that he did not have enough evidence on this point to determine
    whether PDP had mitigated its claim for future rent for the next five years. Indeed,
    in argument on the appeal, PDPs counsel asserted that it was impossible to
    prove future mitigation and that it would have been speculative for the
    application judge to require evidence of further mitigation. That is the very
    reason the application judge refused to determine the issue.

[96]

For these reasons I would dismiss the cross-appeal. I would award
    costs in the amounts agreed between the parties: costs of the appeal to PDP in
    the sum of $15,000 and costs of the cross-appeal to Penguin in the sum of
    $5,000, both amounts inclusive of disbursements and applicable taxes.

Released: DW Jul 26 2018

K. van Rensburg J.A.





[1]
The information consisted of: the files of the two former PDP employees
    concerning the development of the Park; PDPs signage study; minutes of
    meetings of the board of directors; and documentation relating to the
    assumption of management of the Park by CLC.



[2]
Here I use the term accommodation in its legal sense to refer to a surety provided
    in the expectation of little or no remuneration and for the purpose of
    accommodating others or of assisting others in the accomplishment of their
    plans, as distinct from a compensated surety whose business consists of
    guaranteeing performance and payment in return for a premium. It is
    accommodation sureties whose obligations are strictly construed:
Manulife
    Bank of Canada v. Conlin
, [1996] 3 S.C.R. 415, at paras. 12 and 13. There
    can be no question that Penguin provided the Indemnity as an accommodation to
    the Academy, and not for a premium or other compensation.


