



COURT OF APPEAL FOR ONTARIO

CITATION: 1465152 Ontario Limited v. Amexon Development Inc., 2015 ONCA 86

DATE: 20150206

DOCKET: C59083

Hoy A.C.J.O., van Rensburg and Brown JJ.A.

BETWEEN

1465152 Ontario Limited

Respondent

and

Amexon Development Inc.

Appellant

Hillel David, for the appellant

Catherine Francis and Mark Freake, for the respondent

Heard: January 21, 2015

On appeal from the judgment of Justice Frederick L. Myers
    of the Superior Court of Justice, dated June 27, 2014.

Brown J.A.:

Overview

[1]

Amexon Development Inc., the Landlord of a building located at 1200
    Sheppard Avenue East, Toronto, appeals from the judgment of Justice Frederick
    L. Myers dated June 27, 2014 (the Judgment), in which the application judge
    declared that the February 28, 2014 Notice to Vacate issued by the Landlord to
    the respondent Tenant, 1465152 Ontario Limited, was void.  The application
    judge also enjoined the Landlord from re-entering the leased premises and from
    otherwise failing to fulfill its obligations to supply the leased premises with
    the services and utilities required by the lease.

[2]

For the reasons set out below, I would dismiss the appeal on the basis
    that the application judge did not err in his interpretation of the lease for
    the premises or in exercising his discretion to grant a permanent injunction.

Facts

[3]

By lease dated April 1, 2000 (the 2000 Lease) the Tenant leased
    premises at the building for use by the Rubenstein, Siegel law firm.  The term
    of the 2000 Lease was renewed for five years in 2007.  Pursuant to an October
    12, 2010 Lease Expansion and Extension Agreement (the Extension Agreement),
    the Landlord and Tenant agreed to a further extension of the term until March
    31, 2016.  The Extension Agreement provided the Tenant with an option to renew
    for a further five-year term based on mutually agreed terms and conditions,
    based on fair market rents.  All other terms and conditions of the 2000 Lease
    remained in full force and effect.

[4]

Sometime after entering into the Extension Agreement, the Landlord
    decided it wanted to demolish the building and redevelop the property. The
    Landlord was able to negotiate lease termination agreements with all the
    tenants in the building except for the respondent Tenant. Efforts between the
    parties to negotiate a lease termination agreement spanned several months, but
    proved unsuccessful.

[5]

On February 28, 2014, the Landlord delivered to the Tenant a Notice to
    Vacate which read as follows:

This is to confirm that services to and in the Building will be
    turned off as at 12:01 a.m. on September 1, 2014 and as at and from that time
    you will not have pedestrian or vehicular access to the Building.

Please remove all fixtures and leasehold improvements and fully
    vacate the Premises by August 31, 2014. Any trade fixtures not removed from the
    Premises by such date will be disposed of by the Landlord as waste.

Demolition of the Building will occur immediately thereafter.

[6]

On April 1, 2014, the Tenant commenced an application seeking a variety
    of declaratory relief, including a declaration that the Notice to Vacate was
    void, as well as a permanent injunction restraining the Landlord from
    terminating the lease and trespassing onto the leased premises.

Grounds of appeal

[7]

The Landlord advances two main grounds of appeal:


i.

The application judge erred in his interpretation of s. 13.07 of the
    2000 Lease which, the Landlord contended, limited the remedy the Tenant could
    seek for any breach of the 2000 Lease to damages; and


ii.

The application judge erred in granting a permanent injunction because
    the leased premises were not unique and the Landlord had offered the Tenant
    equivalent alternative premises.

The interpretation of s. 13.07 of the 2000 Lease

[8]

Section 13.07 of the 2000 Lease is entitled Remedies Generally and
    provides, in part, as follows:

Whenever the Tenant seeks a remedy in order to enforce the
    observance or performance of one of the terms, covenants and conditions
    contained in this Lease on the part of the Landlord to be observed or
    performed, the Tenants only remedy shall be for such damages as the Tenant
    shall be able to prove in a court of competent jurisdiction that it has
    suffered as a result of a breach (if established) by the Landlord in the
    observance and performance of any of the terms, covenants and conditions
    contained in this Lease on the part of the Landlord to be observed or
    performed.

[9]

The Landlord submits that s. 13.07 limits the remedy available to the
    Tenant for the Landlords breach of any of its obligations under the Lease to a
    claim for compensatory damages.  The application judge rejected that submission
    holding:

But this is not just any breach. The Landlord is walking away
    from its fundamental promise.  This is not a balanced win-win but an effort by
    the Landlord to make more money by denying or rescinding its bargain.  Allowing
    landlords to evict tenants because something better has come along is fraught
    with a risk of abuse.  If the law of leases is to change, it will be more
    incremental, with nuanced protections for both parties.

The limitation of remedies s. 13.07 may be seen to support the
    notion that the transaction as contemplated was always economic at its core and
    this would support an efficient breach concept.  But the parties cannot oust
    the jurisdiction of a court of equity.  Moreover, I do not read s. 13.07 as
    applying when the Landlord commits not just a breach of covenant, but a
    complete repudiation of its grant and consideration [and a tort (trespass) to
    which the clause does not apply].

[10]

In
Sattva Capital Corp. v. Creston Moly Corp.
, 2014 SCC 53, 373 D.L.R.
    (4th) 393, the Supreme Court of Canada held, at paras. 50 to 55, that the
    interpretation of a contract involves an issue of mixed fact and law on which
    an appellate court should defer to the application judge, except where it is
    possible to identify an extricable question of law, such as the application of
    an incorrect principle, the failure to consider a required element of a legal
    test, or the failure to consider a relevant factor.

[11]

The
    Landlord characterizes s. 13.07 as a type of exclusionary clause which limits
    the remedies available to the Tenant upon any breach by the Landlord.  The
    Landlord submits that the application judge applied an incorrect principle by
    failing to follow the approach to contractual interpretation described by the
    Supreme Court of Canada in
Tercon Contractors Ltd. v. British Columbia
    (Minister of Transportation & Highways)
, 2010 SCC 4, [2010] 1 S.C.R.
    69.  At paras. 121 to 123 in that decision the Supreme Court of Canada set out
    the inquiries a court must make when a party seeks to escape the effect of an
    exclusion clause or other contractual term to which it had previously agreed. 
    The first inquiry is to ascertain whether as a matter of interpretation the
    exclusion clause even
applies
to the circumstances established in the
    evidence (emphasis in original).  As stated by Binnie J., at para. 122 of
Tercon
    Contractors
:

This will depend on the Courts assessment of the intention of
    the parties as expressed in the contract.  If the exclusion clause does not
    apply, there is obviously no need to proceed further with this analysis.

[12]

In
    my view, the application judge followed the principles in
Tercon
    Contractors
by first inquiring whether s. 13.07 applied to the Notice to
    Vacate issued by the Landlord.  He concluded that it did not because the
    Landlord had committed a complete repudiation of its grant and consideration [and
    a tort (trespass) to which the clause does not apply].  That conclusion was a
    reasonable one and merits deference for two reasons.

[13]

First,
    at the hearing of the appeal the Landlord acknowledged that it did not enjoy
    any right under the Lease to issue the Notice to Vacate or to insist the Tenant
    vacate the leased premises so that the Landlord could demolish the building. 
    Sections 13.01 and 13.05 of the Lease specified the circumstances in which the
    Landlord could re-enter the leased premises.  The right of the Landlord to do
    so under either section required some failure by the Tenant to comply with the
    Lease.  In the present case, the Landlords February 28, 2014 Notice to Vacate
    did not allege that the Tenant had breached any provision of the Lease, nor did
    it identify any specific provision of the Lease under which the Landlord was
    purporting to re-enter the leased premises.

[14]

To
    accept the Landlords interpretation of s. 13.07 of the Lease would render ss.
    13.01 and 13.05 meaningless.  The Landlord could ignore those contractual
    provisions and re-enter the leased premises arbitrarily and without any
    contractual justification.  The Tenant would not be able to restrain the
    unlawful trespass and could only sue for damages.

[15]

In
    oral argument Landlords counsel acknowledged that the Landlord would not be
    entitled to invoke s. 13.07 if it was acting arbitrarily or for an improper
    purpose.  The Landlord contended that it had not acted arbitrarily because, in
    issuing the Notice to Vacate, it was pursuing the legitimate business objective
    of re-developing the property.  The application judge considered and rejected
    that submission.  The application judge found, in essence, that the Landlord
    was acting arbitrarily, in the sense of without lawful authority or purpose,
    when he held that the Landlord was trying to make more money by denying or
    rescinding its bargain, had committed a complete repudiation of its grant and
    consideration [and a tort (trespass) to which the clause does not apply], and
    had engaged in tortious misconduct.

[16]

A
    commercially unreasonable interpretation of s. 13.07 would result if the
    Landlord could act without lawful authority to bring the Lease to an end and
    re-occupy the premises, and then rely on the disclaimed Lease to prevent the
    Tenant from restraining the Landlords unlawful conduct.  Section 13.07 applies
    [w]henever the tenant seeks a remedy in order to enforce the observance or
    performance of one of the terms, covenants and conditions contained in this Lease
    on the part of the Landlord.  Much clearer language would be required in order
    to restrict the remedies available against the Landlord when it acted
    arbitrarily and without any basis in the rights conferred on it under the
    Lease.

[17]

Second,
    as his endorsement discloses, the application judge interpreted s. 13.07 in the
    context of the entire Lease.  He found that the Lease did not contain a
    demolition clause.  It was open to the Landlord to negotiate the inclusion of a
    demolition clause in the Lease, but it did not do so.

[18]

In
    sum, I see no basis upon which to interfere with the application judges
    interpretation of s. 13.07 of the Lease, his resulting declaration that the
    February 28, 2014 Notice to Vacate was void, and his conclusion that the Tenant
    was not contractually limited to a remedy in damages.

The permanent injunction

[19]

The
    Landlord also appeals para. 2 of the Judgment in which the application judge
    ordered that the Landlord was enjoined from re-entering the Leased Premises
    and otherwise failing to fulfill its obligations to supply the Leased Premises
    with services and utilities and all other goods and services required by the Lease.

[20]

In
    his endorsement the application judge gave the following reasons for granting
    the permanent injunction:

An injunction will only be granted for breach of contract where
    damages are an inadequate remedy.
Pointe East Windsor
2014 ONCA 467
    (CanLII). Here damages are inadequate because the applicability and quantum of
    punitive damages and restitutionary damages is so unclear. I cannot say today
    that the Tenant will be adequately compensated by damages. Moreover, there is
    still a property law element to a lease despite long-standing recognition as
    commercial contracts. Injunctions remain a powerful arrow to preserve property
    rights and to restrain tortious misconduct.

[21]

The
    Landlord submits that the application judge erred in granting a permanent
    injunction for several reasons: (i) an award of damages would adequately
    compensate the Tenant because the leased premises were not unique or special in
    any way; (ii) the Tenant was seeking an injunction for an improper purpose,
    namely to enhance its bargaining position with the Landlord; and, (iii) an
    injunction was a disproportionate remedy in the circumstances. I do not accept
    the Landlords submissions.

[22]

First,
    the Landlord contends that in
Pointe East Windsor Limited v. Windsor (City)
,
    2014 ONCA 467, 374 D.L.R. (4th) 380, at para. 17, this court held that
    equitable relief, such as a permanent injunction, is only available where damages
    are an inadequate remedy. The Landlord submits that the leased premises are not
    unique, so an award of compensatory damages to the Tenant would serve as an
    adequate remedy.  However, in
Pointe East Windsor Limited
, the issue
    of remedy arose in the context of an action for breach of contract, not where
    the holder of an interest in property, such as the Tenant, was alleging a
    wrongful interference with a proprietary interest.

[23]

As
    the law in Ontario currently stands, different considerations apply in the
    latter circumstance, as was explained in Robert J. Sharpe,
Injunctions and
    Specific Performance
, loose-leaf (consulted on 30 January 2015), (Toronto:
    Canada Law Book, 2014), at 4.10 and 4.20:

Where the plaintiff complains of an interference with property
    rights, injunctive relief is strongly favored.  This is especially so in the
    case of direct infringement in the nature of trespass.



The reason for the primacy of injunctive relief is that an
    injunction more accurately reflects the substantive definition of property than
    does a damages award.  It is the very essence of the concept of property that
    the owner should not be deprived without consent. An injunction brings to bear
    coercive powers to vindicate that right.  Compensatory damages for a continuous
    and wrongful interference with a property interest offers only limited
    protection in that the plaintiff is, in effect, deprived of property without
    consent at an objectively determined price.  Special justification is required
    for damages rather than an injunction if the principle of autonomous control
    over property is to be preserved.  A damages award rather than an injunction
    permits the defendant to carry on interfering with the plaintiffs property. 
    [Footnotes omitted.]

[24]

The
    Landlord relies on the decision of the British Columbia Court of Appeal in
Evergreen
    Building Ltd. v. IBI Leaseholds Ltd.
, 2005 BCCA 583, 50 B.C.L.R. (4th)
    250, leave to appeal to S.C.C. granted, [2006] S.C.C.A. No. 43,
[1]
in support of its position that the application judge should not have granted
    a permanent injunction.  That case also involved an argument by a landlord that
    it should be permitted to re-enter leased premises in order to demolish a
    building for redevelopment even though the lease did not contain a demolition
    clause and the tenant had not breached the lease.  The British Columbia Court
    of Appeal, at para. 31 of its reasons, held that the chambers judge had erred
    in granting a permanent injunction because he had treated the remedies related
    to a lease and a contract as water-tight compartments, leading him to ignore
    the issue of whether damages were an adequate remedy in the circumstances.  The
    British Columbia Court of Appeal re-instated the interim injunction restraining
    the landlord from breaching the covenant of quiet enjoyment and remitted the
    issue of the permanent injunction back to the British Columbia Supreme Court
    for consideration of the equities between the parties.

[25]

In
    the present case, the application judge turned his mind to the adequacy of an
    award of damages and then went on to observe, correctly, that [i]njunctions
    remain a powerful arrow to preserve property rights and to restrain tortious
    misconduct.  The Landlord sought to trespass by seeking to enter the leased
    premises without any authority, terminate the Lease and demolish the leased
    premises.  Under those circumstances it fell within the discretion of the
    application judge to restrain the Landlord from committing such a trespass, and
    I see no error in his exercise of that discretion.

[26]

Second,
    the Landlord argues that the Tenant was seeking an injunction for an improper
    purpose, namely to enhance its bargaining position with the Landlord.  Such a
    motivation, according to the Landlord, operated as a reason to deny granting an
    injunction.  Certainly some courts have refused to grant an injunction where
    they have found that the request for injunctive relief was being used to force
    a hard bargain rather than protecting the actual enjoyment of
bona fide
property
    rights:
Michael Santarsieri Inc. v. Unicity Mall Ltd.
(1999), 181
    D.L.R. (4th) 136 (Man. C.A.), at para. 25 and
Denovan v. Lee
(1989),
    65 D.L.R. (4th) 103 (B.C.C.A.), at p. 106.  In the present case, however, the
    application judge made no such finding of improper purpose on the part of the
    Tenant and, by contrast, found that the Landlord had engaged in tortious
    misconduct.

[27]

Finally,
    the Landlord submits that the permanent injunction constituted a
    disproportionate remedy in the circumstances, arguing that it was unreasonable
    to permit the Tenant to continue to occupy premises which amounted to less than
    three per cent of the buildings total rental area when all other tenants had
    vacated the building.  I would not accept that submission for two reasons. 
    First, as pointed out in
Injunctions and Specific Performance
, at
    4.590:

Where there is a direct interference with the plaintiffs
    property constituting a trespass, the rule favoring injunctive relief is even
    stronger than in the nuisance cases.  Especially where the trespass is
    deliberate and continuing, it is ordinarily difficult to justify the denial of
    a prohibitive injunction.  A damages award in such circumstances amounts to an
    expropriation without legislative sanction  In trespass, there has been less
    concern than in nuisance with the problem of extortion.  Even if the
    plaintiff is merely holding out for the highest possible price, and suffers no
    out-of-pocket loss because of the trespass, the courts have awarded
    injunctions.  Such orders may be said to vindicate the plaintiffs right to
    exploit the property for whatever it is worth to the defendant and prevent the
    defendant from circumventing the bargaining process.  [Footnotes omitted.]

[28]

In
    addition, the application judge balanced the parties respective interests and
    tailored the scope of the injunction to that which was necessary to restrain
    the specific unlawful conduct of the Landlord  i.e. its intention to trespass
    onto the leased premises pursuant to the Notice to Vacate in order to terminate
    the tenancy.  His endorsement clearly states that the injunction would not
    protect the Tenant from the consequences of future breaches or future
    application of the Lease, nor did it address the issue of the right of the
    Tenant to renew the Lease upon the expiry of its current term on March 31,
    2016.

Disposition

[29]

For
    those reasons, I would dismiss the appeal.  The parties agreed that in the
    event the appeal did not succeed, the Landlord would pay the Tenant costs,
    all-in, of $25,000, and I so order.

Released: February 6, 2015 (AH)

David
    Brown J.A.

I
    agree Alexandra Hoy A.C.J.O.

I
    agree K. van Rensburg J.A.





[1]
The appeal was subsequently abandoned.  See Supreme Court of Canada,
IBI
    Leaseholds Ltd. v. Evergreen Building Ltd.
(December 3, 2012), online: <http://www.scc-csc.gc.ca/case-dossier/info/dock-regi-eng.aspx?cas=31286>.


