



COURT OF APPEAL FOR ONTARIO

CITATION: Champion Products Corp. v. Intact Insurance
    Company, 2020 ONCA 111

DATE: 20200212

DOCKET: C63947

Simmons, Pardu and Nordheimer JJ.A.

BETWEEN

Champion
    Products Corp., Walkerville Commercial

Centre Inc., formerly
    1206738 Ontario Limited,

and 19298446 Ontario
    Inc., carrying on business as

The
    Party Warehouse

Plaintiffs (Respondents/

Appellants by way of cross-appeal)

and

Intact Insurance
    Company, formerly AXA Insurance

(Canada),
    and AXA Insurance (Canada)

Defendants (Appellants/

Respondents
    by way of cross-appeal
)

Paul J. Pape and Brodie Noga, for the
    appellants/respondents by way of cross-appeal

Myron W. Shulgan, Q.C. and Donald Leschied, for the
    respondents/appellants by way of cross-appeal

Heard: November 5, 2019

On appeal from the
    order of Justice George W. King of the Superior Court of Justice, dated May 18,
    2017, with reasons reported at 2017 ONSC 1740.

Simmons
    J.A.:

I.

introduction

[1]

The respondents,
collectively
    Champion, are related companies that owned or occupied a commercial building
    in Windsor, Ontario. Much of the building was destroyed by fire on February 15,
    2011.

[2]

The appellants, collectively Intact, insured the destroyed building
    under a multi-peril commercial insurance policy.

[3]

The main issue on appeal is
    whether, on a summary judgment motion, the motion judge erred in holding Intact
    must indemnify Champion for recoverable depreciation (essentially, the
    difference between the destroyed buildings actual cash value at the time of
    the fire, and the cost to replace it).

[4]

Under a rider to the policy,
    Champion was entitled to replace the destroyed building at the same or a
    different site and be indemnified for recoverable depreciation provided it
    effected replacement with due diligence and dispatch and a building of like
    kind and quality.

[5]

Nearly two years after the fire, Champion had not replaced the destroyed
    building. On February 6, 2013 it issued a statement of claim seeking indemnity
    under its policy and damages.

[6]

On May 6, 2013 the parties entered into an agreement (the May 6, 2013
    settlement agreement) under which they settled some of the claims in the
    pending action. They agreed on the actual cash value and replacement cost of
    the destroyed building; a formula for determining the recoverable depreciation payable
    if Champion replaced it; and a requirement that Champion account for land
    acquisition costs if it effected replacement at a different site. They also
    agreed that Champion would have 24 months from May 6, 2013 to proceed with
    replacement of the destroyed building, failing which it would be deemed to have
    forever waived and forfeited any claim for recoverable depreciation.

[7]

Champion subsequently entered into two agreements to purchase
    replacement properties prior to the expiry of the 24-month deadline. It terminated
    the first agreement in April 2014. On February 17, 2015, Champion entered into
    an agreement to purchase a Scarborough property to replace the destroyed
    building.

[8]

Shortly before the expiry of the 24-month deadline, on April 29, 2015, Intact
    confirmed the Scarborough property met the like kind and quality requirement.

[9]

On May 1, 2015 the parties exchanged correspondence confirming they had reached
    settlement of the outstanding issues regarding the building loss claim on the
    basis of a further payment of $3 million (the May 1, 2015 agreement). However,
    the May 1, 2015 agreement was subject to various conditions, including Champion
    closing the February 17, 2015 agreement to purchase the Scarborough property.

[10]

On May 12, 2015, Champion entered into a revised agreement to purchase
    the Scarborough property. The revised agreement required the vendor to complete
    certain roof repairs prior to closing.

[11]

Without advising Intact, on November 9, 2015 Champion entered into an agreement
    to purchase a different replacement property, this time in Pickering. Shortly
    thereafter, in mid-November 2015, Champion terminated its agreement to purchase
    the Scarborough property.

[12]

Intact learned of these developments on November 27, 2015. Almost three months
    later, on February 16, 2016, Intact informed Champion that as a result of
    Champion failing to close the purchase of the Scarborough property Champion had
    forfeited its entitlement to recoverable depreciation under the policy and the
    May 6, 2013 settlement agreement as quantified in the May 1, 2015 agreement.

[13]

During the intervening period, however, Intact had taken steps to assess
    the suitability of the Pickering property as a replacement for the destroyed
    building.

[14]

Champion subsequently moved for summary judgment, seeking a declaration
    that Intact had waived Champions obligation to replace the destroyed building
    within 24 months of May 6, 2013. In the alternative, Champion claimed relief
    from forfeiture.

[15]

The motion judge found that the May 6, 2013 settlement agreement
    required Champion to complete the purchase of another building of like kind and
    quality within the stipulated 24-month replacement deadline. However, he
    concluded the May 1, 2015 agreement effectively amended the May 6, 2013
    settlement agreement through a qualified waiver of the 24-month replacement deadline,
    which instead required Champion to complete the purchase of the Scarborough property.

[16]

Further, the motion judge held that, by its conduct after November 27,
    2015, Intact had waived Champions failure to complete the purchase of the
    Scarborough property and its right to deem that Champion had forfeited any
    claim for recoverable depreciation. He concluded that Champion was therefore
    entitled to be indemnified for recoverable depreciation. However, he also found
    that Intacts waiver was limited. All that was waived was the condition that Champion
    had to close the Scarborough purchase to receive $3,000,000; the waiver did not
    extinguish the policy or subsequent agreements under which the replacement
    property issue was settled.

[17]

Having made those findings, the motion judge granted partial summary judgment
    to Champion for $3,000,000. He did not reach the issue of relief from
    forfeiture.

[18]

On appeal, Intact argues the motion judges findings were premised on an
    erroneous conclusion that Intact had to give notice to Champion that by failing
    to close the Scarborough transaction, it had forfeited its entitlement to
    recoverable depreciation under the policies and the subsequent agreements. Intact
    asserts the policies and agreements were forfeited in accordance with their
    terms when Champion failed to complete the Scarborough purchase. By its
    subsequent conduct Intact did no more than fulfill its good faith obligations
    as an insurer.

[19]

Champion responds that the motion judges finding that Intacts conduct
    in May and June 2015 was a
qualified
waiver of its entitlement to deem
    Champion had forfeited its right to replace its destroyed building was an error.
    Rather, Intacts conduct was a complete waiver of its right to rely on the
    24-month deadline. In any event, the motion judges finding that Intact waived
    Champions failure to close the Scarborough transaction is entitled to
    deference.

[20]

By way of cross-appeal, Champion seeks a declaration that on May 1, 2015
    and thereafter Intact waived the 24-month deadline in the May 6, 2013 settlement
    agreement. In the alternative, Champion seeks an order that it is entitled to
    relief from forfeiture.

[21]

At the request of the panel, in post-hearing submissions the parties
    confirmed that Champion never completed the Pickering transaction. The panel
    also requested that Champion clarify the appropriate remedy for its relief from
    forfeiture claim. Champion responded that the remedy should remain a monetary
    award of damages  of $3,000,000. In the alternative, Champion requested a
    trial of the issue of the amount Intact should have paid as recoverable
    depreciation to fund the purchase of the Pickering property. In support of its
    position, Champion asserted that to simply find that Champion still had the
    right to purchase a replacement property would be unjust because of the
    dramatic rise in the cost of commercial real estate in the Greater Toronto Area.

[22]

Intact asserts that Champions original failure and current refusal to
    replace the destroyed building disentitle it to relief from forfeiture
.

[23]

For the reasons that follow, I would allow the appeal, set aside the summary
    judgment, and substitute a declaration that Intact did not waive Champions failure
    to replace its destroyed building as required under the policies and agreements
    of the parties. I would dismiss Champions cross-appeal.

II.

background

(1)

The Policies

[24]

The destroyed building was insured under a commercial insurance policy and
    a Megaproperty Rider. The commercial insurance policy required payment of the
    actual cash value of the building in the event of a loss. The Megaproperty Rider
    provided replacement cost coverage.

[25]

Clause 18, paragraph f, of the Megaproperty Rider provided for an actual
    cash value valuation. Paragraph 4 ac. of the Rider set out the replacement cost
    coverage extension and the requirements for the insured to effect replacement
    with due diligence and dispatch and to complete replacement prior to
    settlement being made:

4 ac.
Replacement cost:
the basis of valuation described
    in paragraph f. of clause 18. is changed to the following:

All other insured property for which
    no more specific conditions have been set out: the replacement cost at the
    time and place of loss or damage, but not exceeding the amount actually and
    necessarily expended to complete the replacement, provided:

1)

Replacement
    shall be effected by the insured with due diligence and dispatch.

2) Settlement on a replacement
    cost basis shall be made only when replacement has been completed by the
    Insured.

If the Insured does not comply with
    requirements (1) and (2) above, settlement shall be made as if this extension
    was not in effect. [Emphasis in original.]

[26]

Replacement and Replacement cost are both defined in clause 22 of
    the Rider:

22. DEFINITIONS

Wherever used in this rider or its endorsements:



u. Replacement includes repair, construction or re-construction
    with new property of like kind and quality. If new property of like kind and
    quality is unobtainable, new property as similar as possible to that lost or
    damaged and which is capable of performing the same function shall be
    considered to be new property of like kind and quality for the purpose of this
    definition.

v. Replacement cost means whichever is the least of the cost
    of replacing, repairing, constructing or re-constructing the property on the
    same site with new property of like kind and quality and for like occupancy
    without deduction for depreciation.

(2)

The May 6, 2013 Settlement Agreement

[27]

By May 6, 2013, more than two years had elapsed from the fire and
    Champion had sued Intact for indemnity and damages. One major issue between the
    parties was the building loss claim. On May 6, 2013 the parties entered into a
    settlement agreement to resolve aspects of that claim as well as other claims.
[1]

[28]

As part of the May 6, 2013 settlement agreement, the parties agreed that
    the actual cash value of the building claim was $2,850,000. After deducting
    advance payments of $1,860,000, Intact paid a further $990,000 under the May 6,
    2013 settlement agreement to fully indemnify Champion for the actual cash value
    of the destroyed building.

[29]

The parties also agreed on the Replacement cost of the destroyed building:
    a total of $7,600,000. Champion would only be entitled to Replacement cost if
    the new property was of like kind and quality and for similar occupancy as
    the destroyed building. The amount payable upon replacement would be the lesser
    of $7,600,000 minus $2,850,000 and the actual replacement cost minus
    $2,850,000. If Champion replaced the property at a different site, Champion would
    have to account to Intact for land acquisition costs to determine the
    recoverable depreciation amount. If the parties could not reach an agreement on
    land value, it was to be determined through the appraisal process as provided
    for in the policy and under the
Insurance Act
, R.S.O. 1990, c.
I.8.

[30]

The 24-month deadline for replacement of the destroyed building was
    stipulated under paragraph 2 j. of the May 6, 2013 settlement agreement, which
    provided, in part:

The insured/Plaintiff will have
24 months from the date of
    settlement to proceed with replacement
in accordance with the policy and
    claim and the recoverable depreciation entitlements under this settlement
failing
    which the insured/plaintiff will be deemed to have forever waived and forfeited
    any claim
on the policies or under this settlement
for recoverable
    depreciation
. [Emphasis added.]

(3)

The Vaughan Agreement of Purchase and Sale

[31]

Champions first attempt at obtaining a replacement for the destroyed
    building involved a March 7, 2014 agreement of purchase and sale for a
    warehouse property located in Vaughan.

[32]

Champion and the vendor of the Vaughan property set the value of the
    land at $2,400,000, whereas Intacts appraiser valued the land at $4,600,000.
    Ultimately, Champion could not secure the additional financing required to
    complete the purchase and did not close the transaction. Champion communicated
    this to Intact on April 29, 2014.

(4)

The February 17, 2015 Scarborough Agreement of Purchase and Sale

[33]

On February 17, 2015 Champion entered into an agreement to purchase a
    building located in Scarborough. The original closing date was April 29, 2015.

[34]

However, as noted by the motion judge, there were numerous
    complications and considerations related to whether this property would meet
    the like kind and quality for similar occupancy requirement. Eventually, on
    April 29, 2015 Intact indicated the Scarborough property met that requirement.

(5)

The May 1, 2015 Settlement Agreement

[35]

The parties reached an agreement on April 30, 2015 concerning
    replacement cost. The agreement was confirmed by correspondence between counsel
    on May 1, 2015.

[36]

On May 1, 2015 counsel for Intact wrote, in part:

I write to confirm that we have reached settlement of the
    outstanding issues regarding the building loss claim on the basis of a further
    payment of $3 million. The settlement is subject to:

1. The closing of the purchase of the
    [Scarborough property] in accordance with the Agreement of Purchase and Sale
    dated February 17, 2015 reflecting a purchase price of $7,450,000.00, subject
    to the usual adjustments on closing.



4.  Should the purchase price
    turn out to be less than represented then the amount payable by the
    Defendant/Insurer will be reduced by the amount to which the purchase price is
    less than $7,450,000.00.
[2]

[37]

Counsel for Champion responded by email the same day: We will comply
    with the terms of the closing of the Scarborough property, as you spelled out.

(6)

The May 12, 2015 Scarborough Agreement of Purchase and Sale

[38]

The February 17, 2015 Scarborough agreement of purchase and sale allowed
    Champion the right to inspect the property before closing. On doing so,
    Champion discovered that the roof of the Scarborough property required repairs
    and declined to complete the original agreement of purchase and sale.

[39]

On May 12, 2015 Champion entered into a second agreement to purchase the
    Scarborough property, which superseded the February 17, 2015 agreement of
    purchase and sale. This agreement required the vendor to effect roof repairs
    prior to closing.

[40]

Closing was scheduled for June 29, 2015. By letter dated June 25, 2015, in
    which Intacts counsel acknowledged reviewing the May 12, 2015 Scarborough
    agreement of purchase and sale, counsel for Intact forwarded a cheque payable
    to counsel for Champion, in the amount of $3,000,000 to be held in trust in
    accordance with the May 6, 2013 settlement agreement. Subject to any
    agreed-upon extension of the closing date, counsel for Intact requested that
    the cheque be returned if the transaction did not close as scheduled. Counsel
    for Intact also requested, in accordance with his May 1, 2015 correspondence,
    that a cheque for the amount of any reduction in the purchase price be sent to
    him if the final purchase price was less than $7,450,000.

(7)

Termination of the Scarborough Agreement of Purchase and Sale and Subsequent
    Events

[41]

The closing date of the Scarborough agreement of purchase and sale was
    ultimately extended to November 17, 2015.
[3]
On November 16, 2015 Champion cancelled the Scarborough agreement of purchase
    and sale and demanded the return of its deposit as the required roof repairs had
    not been completed.

[42]

In the meantime, on November 9, 2015, Champion had entered into an
    agreement to purchase a Pickering property through a related company, Dynamic
    Holdings, for $7,400,000. The closing date was March 31, 2016.

[43]

Intact learned of these developments on November 27, 2015 at an
    examination for discovery concerning Champions business interruption loss
    claim
. By letter dated December 4, 2015 Champions counsel requested that
    the Pickering property be treated as a replacement property. Following further
    correspondence from Champions counsel, on January 5, 2016 Intacts counsel
    responded:

I do not currently have instructions. In fact my instructions
    are to request return of the money. I am seeking clarification and hope to have
    a further response before your deadline. In the meantime what is the closing
    date and is the deal likely to close on that date, assuming financing.

[44]

On January 13, 2016 Intacts counsel wrote again to Champions counsel.
    In his letter, counsel confirmed that he did not have instructions to consent
    to the substitution of the Pickering property for the Scarborough property and
    allow the $3,000,000 settlement funds to be retained and used for that purpose.
    However, he confirmed Intact was looking further at the issue.

[45]

In his January 13, 2016 letter, Intacts counsel also asserted that
    Champions failure to replace the building within the 24-month timeline
    stipulated in the May 6, 2013 settlement agreement resulted in Champion having
    forfeited the right to recoverable depreciation. He acknowledged, at least
    implicitly, that Intact would have permitted the completion of the Scarborough
    purchase. However, as that transaction was not completed technically Champion
    was required to return the $3,000,000 cheque. Nonetheless, as the matter
    remained under review, Champions counsel could retain the $3,000,000 cheque in
    trust pending further direction from Intacts counsel.

[46]

Following the January 13, 2016 letter, Intacts counsel sought further
    information concerning the demise of the Scarborough transaction and the
    Pickering purchase. Intact also obtained an appraisal of the Pickering property
    together with confirmation from the appraiser that it would meet the like kind
    and quality requirement. Although Intact learned in late January 2016 that the
    latter requirement was satisfied, its appraiser valued the land at
    significantly less than the Champion appraisal. Intacts appraisal resulted in
    a recoverable depreciation amount of $2,600,000; whereas Champions resulted in
    $3,225,000.

[47]

While Intacts decision regarding the Pickering property remained under
    consideration, Champion obtained extensions to the financing condition to keep
    the purchase agreement alive. To obtain an extension to February 15, 2016,
    Champion paid the vendor a $20,000 non-refundable additional deposit.

[48]

As I have said, on February 16, 2016 Intact notified Champion through
    counsel that as a result of Champion not closing the purchase of the
    Scarborough property Champion had forfeited its entitlement to recoverable
    depreciation under the policies and the May 6, 2013 settlement agreement as
    quantified in the May 1, 2015 agreement. Further, Intact rejected Champions
    request to treat the Pickering property as a replacement, pointing primarily to
    the fact that it was being asked to pay $400,000 more than it would have had to
    pay had Champion proceeded in accordance with the parties agreements.

[49]

Intact therefore demanded the return of its $3,000,000 cheque.

III.

the motion judges reasons

[50]

The motion judge made several key findings that led to his conclusion
    that Intact was required to pay Champion $3,000,000 as recoverable depreciation
    for the destroyed building.

[51]

First, he concluded that the May 6, 2013 settlement agreement resolved
    the outstanding replacement property issues between the parties. Under the
    policy, replacement could occur in various ways. The motion judge found that
    the 24-month deadline specified in the May 6, 2013 settlement agreement applied
    to all forms of replacement. If Champion failed to replace as permitted within
    that timeframe, it would be deemed to have forever waived and forfeited any
    claim for recoverable depreciation under the policies or the settlement. These
    findings are not challenged on appeal.

[52]

Second, the motion judge concluded that, in the May 1, 2015 agreement,
    the parties effectively amended the May 6, 2013 settlement agreement. They did
    so through a qualified waiver of the 24-month deadline such that Champion would
    still be entitled to the $3,000,000 recoverable depreciation payment if it
    effected replacement after that date, provided it completed the February 17,
    2015 agreement to purchase the Scarborough property.

[53]

Third, the motion judge found that Intact was in a position as of November
    27, 2015 (the date Intact learned that Champion had terminated the Scarborough
    purchase agreement), or within a reasonable time thereafter, to notify Champion
    that by aborting the Scarborough purchase it had forever waived and forfeited any
    claim on the policies or under the settlement for recoverable depreciation.

[54]

Fourth, the motion judge found that by its conduct after November 27,
    2015, Intact demonstrated a clear and unequivocal intention to calculate the
    recoverable depreciation owing pursuant to the policy utilizing the Pickering
    property in substitution for the Scarborough property. Intact had therefore
    waived Champions failure to close the Scarborough transaction and its right to
    deem that Champion had waived and forfeited any claim for recoverable
    depreciation.

[55]

Finally, the motion judge concluded that Intacts waiver was of limited
    scope and effect. All Intact had waived was the condition that, to receive the
    agreed upon $3,000,000, Champion had to close the Scarborough purchase  the
    waiver did not extinguish the policy or subsequent agreements under which the
    replacement property issue was settled.

[56]

The motion judge therefore granted partial summary judgment to Champion
    and ordered Intact to pay Champion the $3,000,000 agreed upon as recoverable
    depreciation.

IV.

analysis

[57]

The main issue on appeal and the first issue raised by Champion on its cross-appeal
    are interrelated. I will therefore consider them together.

(a)

Did the motion judge err in finding Intact waived Champions failure to
    complete the purchase of the Scarborough property by which Champion itself
    forever forfeited any claim to recoverable depreciation?

[58]

Intact argues that the motion judge erred in finding it waived
    Champions failure to complete the purchase of the Scarborough property because
    he concluded, erroneously, that Intact had to give Champion notice of
    forfeiture for forfeiture to occur. This error, says Intact, tainted the motion
    judges reasoning concerning whether Intact waived the forfeiture that occurred
    because of Champions failure to close.

[59]

Champion responds with two arguments. First, it says the motion judge
    erred in failing to find that, by its conduct in May and June 2015, Intact
    waived the 24-month deadline in the May 6, 2013 settlement agreement. The
    failure to close the Scarborough purchase is therefore irrelevant because by
    that time, there was no longer a 24-month deadline for completing the purchase
    of a replacement building. This is also Champions first request by way of
    cross-appeal. Second, and in any event, Intacts failure to give notice of
    forfeiture was but one factor the motion judge considered in concluding Intact
    waived Champions failure to close the Scarborough purchase. His finding in
    that regard is entitled to deference.

[60]

As it is first chronologically, I will begin with Champions first
    argument.

(i)

Did the motion judge err in failing to find that, by its conduct in May
    and June 2015, Intact waived the 24-month deadline in the May 6, 2013
    settlement agreement?

[61]

The motion judge referred to the May 1, 2015 agreement and the parties
    conduct as both amending the May 6, 2013 settlement agreement (by extending the
    24-month replacement deadline) and as constituting a qualified waiver of that
    deadline.

[62]

Champion argues that the May 1, 2015 agreement and the parties conduct
    did neither. Rather, Intacts conduct in May and June 2015 amounted to a
    complete waiver of the 24-month replacement deadline.

[63]

Champion points out that the May 1, 2015 agreement does not refer to the
    May 6, 2013 settlement agreement at all  let alone express any intention to
    amend it. Importantly, it does not identify any date to which the 24-month replacement
    deadline could be extended. Contrary to the motion judges conclusions, on its
    face, the sole effect of the May 1, 2015 agreement was to resolve the amount of
    the recoverable depreciation payable by Intact.

[64]

Significantly, says Champion, on May 12, 2015  six days after the
    expiration of the 24-month replacement deadline  it entered into a new
    agreement to purchase the Scarborough property that included different terms
    than those contained in the original February 17, 2015 agreement of purchase
    and sale. Nonetheless, on June 29, 2015 Intact advanced $3,000,000 to
    Champions counsel to complete the purchase of the Scarborough property. Intact
    advanced these funds at a time when it knew:

·

the 24-month replacement deadline in the May 6, 2013 settlement
    agreement had expired;

·

replacement had not been effected within the 24-month replacement
    deadline;

·

no agreement had been made specifying a new replacement deadline;
    and

·

the pending purchase of the Scarborough property was to be completed
    under an agreement of purchase and sale made after the 24-month replacement
    deadline specified in the May 6, 2013 settlement agreement.

[65]

Given these circumstances, Champion submits that Intacts conduct in May
    and June 2015 can only properly be interpreted as a complete waiver of the
    24-month replacement deadline specified in the May 6, 2013 settlement
    agreement. Intacts agreement to indemnify Champion based on an agreement of
    purchase and sale made after the expiry of the 24-month replacement deadline
    specified in the May 6, 2013 settlement agreement can reflect no other
    intention.

[66]

I would not accept these submissions.

[67]

Although Champion is correct that the May 1, 2015 agreement does not
    refer specifically to the May 6, 2013 settlement agreement or identify a
    specific date to which the 24-month replacement deadline was extended, I see no
    error in the motion judges conclusion that the May 1, 2015 agreement effected
    what I would refer to as a conditional waiver of that deadline.

[68]

The motion judge observed that the May 1, 2015 agreement was made just
    days before the expiration of the deadline specified in the May 6, 2013
    settlement agreement. Further, he found there was clear recognition that the
    then current agreement of purchase and sale of the Scarborough property  was
    not going to close by May 6, 2015.

[69]

Under the May 1, 2015 agreement, the $3,000,000 settlement on account of
    recoverable depreciation was subject to closing the purchase of the Scarborough
    property in accordance with the February 17, 2015 agreement of purchase and
    sale. Although the correspondence did not explicitly refer to the May 6, 2013
    settlement agreement, the only sensible interpretation of the term that the
    settlement was subject to closing the Scarborough transaction was that the 24-month
    replacement deadline was waived
conditional
on the February 17, 2015
    agreement being completed.

[70]

The motion judge made no explicit finding concerning the impact of the May
    12, 2015 Scarborough agreement of purchase and sale. In my view, Intacts
    counsels June 25, 2015 letter made it clear that Intact accepted the May 12,
    2015 agreement of purchase and sale as a substitute for the February 17, 2015
    agreement and, to the extent Intact was thereby waiving the 24-month
    replacement deadline in the May 6, 2013 settlement agreement, it was again doing
    so only
conditionally
 but now conditional on completion of the May 12,
    2015 agreement.

[71]

In his June 25, 2015 letter, Intacts counsel acknowledged reviewing the
    May 12, 2015 agreement. Examination of the February 17, 2015 agreement of
    purchase and sale and the May 12, 2015 agreement reveals that the terms related
    to the recoverable depreciation issue had not changed. Both the property and
    the purchase price remained the same. The June 25, 2015 letter specified that
    Intact was proceeding on the assumption the transaction would close; enclosed a
    cheque for $3,000,000, the amount agreed upon in the May 1, 2015 agreement; and
    included the following requirements:

·

if the $7,450,000 purchase price, which was the premise of the
    May 1, 2015 agreement, was adjusted below that figure, Champion was to repay
    the difference to Intact; and

·

if the transaction did not close on June 29, 2015 for reasons
    other than a straightforward extension of the closing date, the $3,000,000
    cheque was to be returned to Intact.

[72]

Particularly in light of the latter requirement, I would reject the
    argument that Intact waived absolutely the 24-month replacement deadline by
    accepting this substitution. For these reasons, I would also reject the first
    ground of Champions cross-appeal.

(ii)

Did the motion judge err in holding that Intact had to give notice to
    Champion that Champion had forfeited its entitlement to recoverable
    depreciation and in finding that Intact waived Champions failure to close the
    Scarborough transaction?

[73]

I turn now to Intacts argument that the motion judge erred in holding
    that Intact had to give notice to Champion that it had forfeited its
    entitlement to recoverable depreciation by failing to close the Scarborough
    transaction and further erred in finding Intact waived the obligation to close
    that transaction.

[74]

Champion responds that the motion judges decision was not premised on a
    finding that Intact was required to provide Champion with notice of forfeiture.
    Instead, Intacts failure to provide notice was simply one of many factors the
    motion judge properly considered in concluding that Intact had waived Champions
    obligation to complete the Scarborough purchase. The motion judges reasons and
    his finding of waiver are entitled to deference.

[75]

I would accept Intacts argument. I would set aside the motion judges
    finding that Intact waived Champions failure to close the Scarborough purchase
    and substitute a finding that Intact did not waive that obligation.

[76]

The trial judge addressed three main issues before concluding that
    Intact waived Champions failure to complete the Scarborough purchase:

i)

Did the parties negotiate an agreement that required Champion to replace
    the destroyed building on specific terms and conditions or else permanently
    forfeit its right to claim indemnity for a replacement property pursuant to the
    insurance policy?

ii)

Did Champion fail to effect replacement in accordance with the insurance
    policy and subsequent agreements of the parties?

iii)

If Champion did not replace the [destroyed building] pursuant to the
    specific terms and conditions of the insurance policy as amended by the
    agreements, did Intact waive Champions obligation in that respect?

[77]

The motion judge answered the first question in the affirmative. Regarding
    the second question he concluded that by terminating the Scarborough
    transaction, Champion clearly failed to replace the destroyed building in
    accordance with the policy and the agreements of the parties. However, at para.
    124 of his reasons, the motion judge stated: Accordingly, I find that as of
    November 27, 2015 (or within a reasonable time thereafter)
Intact was in a
    legal position
to notify
Champion that by aborting the Scarborough
    purchase Champion had forever waived and forfeited any claim
on the
    policies or under the settlement
for recoverable depreciation
 (emphasis
    added).

[78]

Subsequently, in addressing the issue of waiver of the failure to close
    the Scarborough transaction, the motion judge noted at para. 201 that upon
    learning of Champions actions Intact 
had the ability to deem Champion to
    have forever waived and forfeited any claim for recoverable depreciation

    (emphasis added).

[79]

Further, at para. 202, the motion judge observed that Intact 
failed
    to give clear and unambiguous notice to Champion
that it had forfeited
    entitlement to recoverable depreciation  on November 27, 2015, or within a
    reasonable time thereafter (emphasis added).

[80]

In addition, at paras. 205 and 206, the motion judge stated:

In fact, other than
occasionally appearing to be obtusely
    preserving its right to treat Champion as having forfeited entitlement to
    recoverable depreciation at an unspecified later date
, the actions of
    Intact actually demonstrate an intention on its part to demonstrate whether the
    Pickering property qualified as a proper substitution of the Scarborough
    property. I conclude that the following actions taken by Intact had no
    relevance to the forfeiture issue, but were such that a reasonable person would
    conclude that Intact intended to assess the Pickering property and intended to
    waive the forfeiture of Champion  .



In these circumstances, Intact simply declaring that a
    decision was pending could not and
did not have the legal effect of
    unilaterally giving Intact the right to take almost three months to make a
    decision as to whether to deem Champion to have forfeited recovery
.
    [Emphasis added.]

[81]

Finally, at paras. 207 to 209, the motion judge stated:

There is
no evidence
before the court that
Intact
    reasonably needed any additional information in order to claim forfeiture
and that such essential information was not otherwise available until February
    2016.

In and of itself, that delay justifies a finding that Intact
    waived the right to act upon the breach committed by Champion in November 2017.

That conclusion is  buttressed by the extensive evidence  of
    the numerous and significant steps taken by Intact that cannot reasonably be
    interpreted  as required to determine whether to assert forfeiture.

[82]

Reading the motion judges reasons as a whole, I can only conclude that
    he proceeded on the basis that Intact was required to give notice of forfeiture
    for forfeiture to occur and that further, Intact had to give such notice within
    some reasonable length of time after Champion defaulted.

[83]

In doing so, the motion judge erred. None of the agreements or
    correspondence  the insurance policy, the May 6, 2013 settlement agreement,
    the May 1, 2015 agreement or counsels June 25, 2015 letter  require notice of
    forfeiture. On the contrary, under the May 6, 2013 settlement agreement
    forfeiture was automatic in the event of default.

[84]

The Megaproperty Rider required simply that replacement be effected with
    due diligence and dispatch.

[85]

The May 6, 2013 settlement agreement imposed the 24-month replacement
    deadline and stipulated that absent compliance [Champion] will be deemed to
    have forever waived and forfeited any claim on the policies or under this
    settlement for recoverable depreciation. Neither the May 1, 2015 agreement nor
    counsels June 25, 2015 letter amended the forfeiture provision in the May 6,
    2013 settlement agreement. On its face, that provision created an automatic
    forfeiture.

[86]

As I read the motion judges reasons, his conclusion that Intact waived
    Champions failure to complete the Scarborough transaction was tainted by his
    erroneous view that Intact was required to give notice of forfeiture. The
    motion judge therefore analyzed Intacts actions on the assumption that Intact
    had to decide whether to forfeit Champions entitlement to recoverable
    depreciation. In doing so, he failed to recognize that, under the May 6, 2013
    settlement agreement, Champion had forfeited its right to recoverable
    depreciation by its default.

[87]

These errors led the motion judge to misinterpret the effect of Intacts
    statements about the status of its obligations, the effect of its investigations
    of the Pickering property and the effect of the time it took to complete those
    investigations. The motion judges statements set out at paras. 79 and 80 above
    illustrate these points.

[88]

As I read the motion judges reasons, he analyzed Intacts actions
    through the lens of whether they related to either a decision to forfeit
    Champions entitlement to recoverable depreciation under the policy and
    agreements or a decision to waive Champions failure to close the Scarborough
    transaction.

[89]

However, this reasoning ignores the reality that forfeiture was
    automatic and had already occurred. Therefore, the issue for Intact was not
    deciding whether to forfeit Champions right or whether to waive Champions
    breach, but solely whether to choose to accept the Pickering property as a
    replacement for the Scarborough despite the fact that forfeiture had already occurred.
    Put another way, Intact was effectively considering whether it should grant
    relief from forfeiture. In this latter context, Intacts actions were
    necessarily directed solely at that question  and the fact that it was
    considering whether to accept the Pickering property did not evidence an
    intention to do so.

[90]

On my review of the record, Intacts post-November 27, 2015 conduct
    indicated  at most  a willingness to
consider
accepting the Pickering
    property as a substitute for the Scarborough property. Intact never indicated,
    either expressly or by its conduct, that it would do so. In particular, on
    January 5, 2016 Intacts counsel informed Champion that he had instructions 
    to request return of the money. In another letter sent the following week,
    Intacts counsel confirmed that Champion had forfeited its right to recoverable
    depreciation.

[91]

At no point did Intact express or otherwise communicate an unequivocal
    and conscious intention to unconditionally waive Champions default and
    resulting forfeiture of its right to receive recoverable depreciation:
Saskatchewan
    River Bungalows Ltd. v. Maritime Life Assurance Co
., [1942] 2 S.C.R. 490,
    at p. 500.

[92]

In the result, I would accept Intacts argument that the motion judge
    erred in finding that Intact waived Champions failure to close the Scarborough
    transaction. Further, in the absence of evidence that Intact intended to or
    communicated an intention to waive Champions failure to comply with the
    24-month deadline in the May 6, 2013 settlement agreement, I conclude there was
    no waiver. I therefore conclude Champion forfeited its right to recoverable
    depreciation when it failed to close the Scarborough transaction and that Intact
    never waived the forfeiture.

(b)

Is Champion entitled to relief from forfeiture?
[4]


[93]

Although the motion judge did not address relief from forfeiture, both
    parties requested that we address the issue on appeal. Champion claims the
    equitable remedy of relief from forfeiture under both s. 129 of the
Insurance
    Act
and s. 98 of the
Courts of Justice
Act
,

R.S.O. 1990, c. C.43
. It
argues that it had a justifiable reason not to close the
    Scarborough transaction and was unable to close the Pickering transaction
    because Intact refused to fund it. Moreover, Intact has already allocated funds
    for the recoverable depreciation and would therefore suffer no prejudice if
    relief from forfeiture was granted.

[94]

I would not grant Champions request. It seeks indemnity for recoverable
    depreciation in relation to the destroyed building. However, it asserts that
    requiring it to proceed with replacement now would be unjust, advances no plan
    for permitting it to do so and purports to claim damages for Intacts failure
    to fund the Pickering transaction.

[95]

Champions argument ignores the reality that Intact has
    indemnified Champion for the actual cash value of the destroyed building and
    that under the terms of the policies, absent replacement, Champion is not
    entitled to recoverable depreciation. I see no basis on which to grant relief
    from forfeiture when Champion has neither replaced its destroyed building nor proposed
    terms on which it should be
permitted to do so
    now.

[96]

As for a remedy in damages, Intact
    did not waive Champions forfeiture of its right under the policies and
    agreements to recoverable depreciation. Intact was not contractually obliged to
    fund the Pickering transaction. I therefore see no basis on which to award
    damages.

V.

Disposition

[97]

Based on the foregoing reasons, I
    would allow the appeal, set aside the summary judgment, substitute a
    declaration that Intact did not waive Champions failure to replace its
    destroyed building as required under the policies and agreements of the parties
    and dismiss the cross-appeal.

[98]

Costs of the appeal are to Intact,
    on a partial indemnity scale fixed in the amount of $50,000, inclusive of
    disbursements and HST.
If desired, the
    parties may file brief submissions not to exceed five pages concerning costs of
    the proceeding below. Intact should file any such submissions within 7 days of
    the release of these reasons, Champion may respond within 7 days thereafter. In
    the absence of submissions, the fees and HST awarded below shall be reversed,
    the parties may agree on disbursements and the order that Intact pay Champion
    $20,000 on account of the non-refundable deposit shall be set aside.

Released:
G.P. February 12, 2020

Janet Simmons J.A.

I agree. G. Pardu
    J.A.

I agree. I.V.B.
    Nordheimer J.A.

Appendix A

May 6, 2013 Settlement Agreement

WHEREAS
    Champion Products Corp., Walkerville Commercial Centre Inc., formerly 1206738
    Ontario Limited and 1298446 Ontario Inc. cob The Party Warehouse" (hereinafter
    the insured/plaintiff) experienced losses following a fire on February 15,
    2011; and

WHEREAS
    Intact Insurance Company, formerly AXA Insurance (Canada) and AXA Insurance
    (Canada) (hereinafter the insurer/defendant) Insured the Insured/plaintiff
    pursuant to various policies (hereinafter the policy) of

Insurance at
    the time of the fire; and

WHEREAS the
    insured/plaintiff has made claims from the insurer/defendant on the policy; and

WHEREAS the
    insured/plaintiff has commenced legal action against the insurer/defendant in
    the Ontario Superior Court of Justice Identified by court file no. CV-13·18990
    issued at Windsor, Ontario; and

WHEREAS the
    insured/plaintiff and insurer/defendant have reached partial settlement of
    claims on the policies and forming the subject of the legal action as
    hereinafter set out.

TERMS
    OF SETTLEMENT

1.

IN CONSIDERATION of the insurer/defendant making further payments in the
    amount or ONE MILLION, TWO HUNDRED AND NINETY THOUSAND DOLLARS AND ZERO CENTS
    ($1,290,000.00) to the Insured/plaintiff over and above monies already advanced
    by the insurer/defendant to the lnsured/plaintiff, the sufficiency of which is hereby
    acknowledged, the Insured/plaintiff agrees as follows:

(a)

The Insured/plaintiff agrees to settle all claims on the policy and
    forming the subject of the legal action, Including any claims past, present and
    future for bad faith, punitive, aggravated damages, damages for mental distress
    or any other extra contractual damages. This settlement does not include the claims
    for business interruption loss and the following mega property extensions of
    the policy (hereinafter the miscellaneous claim) nor to interest and costs:



Accounts receivable;



Extra expense;



Professional fees;



Proof of Loss preparation costs;



Valuable papers and business records; and



Catchall coverage, as stated in the policy, as it relates to any

of
    the categories of unsettled claims.

The business
    interruption and miscellaneous claim specifically remain

unsettled and
    pan of the ongoing litigation claim, including interest and

costs;

(b)

The insured/plaintiff agrees to abandon and not hereafter pursue any
    claims for bad faith, punitive, aggravated, mental distress damages or any other
    extra contractual claims;

(c)

The insured/plaintiff agrees to execute a Proof of Loss reflecting the payments
    hereinafter of $1,290,000.00;

FURTHER PARTICULARS OF THE
    SETTLEMENT


2.

As part of the consideration for the payment of $1,290,000.00 the
    Insured/plaintiff agrees as follows:

a.

Of the $1,290,000.00 referred to in paragraph 1 herein, $300,000.00
    represents a final payment against the claim of contents, including actual cash
    value and all replacement cost entitlements,

b.

Actual cash value of the building claim is agreed to at $2,850,000.00.
    Advance payments have already been made against this claim in the amount of $1,860,000.00.
    Payment in the amount of $990,000.00 of the $1,290,000.00 referred to in
    paragraph 1 herein represents a top up payment to fully fund the actual cash
    value settlement of the buildings;

c.

Replacement cost of the building is agreed to as follows:


i.

$6,900,000.00 for the replacement cost of the destroyed north portion of
    the building and;


ii.

$700,000.00 for the replacement cost of the repairs to the damaged south
    portion of the building;

d.

The insured/plaintiff shall only be entitled to recover the difference
    between the actual cash value payments made and the total replacement cost
    agreement by complying with the policy provisions dealing with replacement. The
    recoverable depreciation entitlement will be the lesser of the amount actually
    incurred for replacement and the agreed upon settlement of replacement cost
    value with credit being given for the actual cash value payments made;

e.

The actual cash value (ACV) amount of $2,850,000.00 referred to in
    paragraph 2(b) and the amounts of recoverable depreciation entitlement
    ($4,750,000.00) are further broken down as follows:


i.

Partial loss (south) section of the building $282,894.74 represents the
    ACV amount with recoverable depreciation entitlement being $417,105.26
    ($700,000.00  $282,894.74).


ii.

The total loss (north) section of the building $2,567,105.02 represents
    the ACV of the loss with recoverable depreciation entitlement being $4,332,894.80
    ($6,900,000.00  $2,567,105.20).

f.

Should the insured/plaintiff proceed to replace the building at a
    different site, the insured/plaintiff shall account to the insurer/defendant
    for the land acquisition costs of the replaced building. For greater clarity
    and by way of example, if the Insured/plaintiff purchased an existing building
    for $10,000,000.00 and the value of the land was $4,000,000.00 the replacement
    cost expended for the purpose of claiming replacement cost benefits pursuant to
    this settlement would be $6,000,000.00. Also by way of example, If the
    insured/plaintiff bought vacant un-serviced land for $1,000,000.00 and then
    expended $2,000,000.00 servicing the land and $7,000,000.00 constructing the
    building, the replacement cost expenditure would be $9,000,000.00. These
    examples are not intended to be exhaustive, but only illustrative of the spirit
    and intent of the settlement;

g.

In the event that there is no agreement with respect to the land value,
    such value shall be determined through the appraisal process as provided for in
    the policy and
Insurance Act
;

h.

In order for the insured/Plaintiff to be entitled to recoverable
    depreciation under this settlement such replacement must be completed with like
    kind and quality and for similar occupancy as the insured buildings. The
    insured/Plaintiff agrees to submit their proposal for replacement to the
    Insurer/Defendant for agreement as to whether the proposed replacement falls
    within the requirements of the policy;

i.

In repairing or replacing the building the recoverable depreciation
    entitlement will not be based on a line by line comparison between the repair
    estimates used in calculating the replacement cost amounts set out in paragraph
    2(c) and the replaced/repaired building, but shall be based upon how much the
    insured/Plaintiff is spending on a global basis to repair/replace the
    building(s) (subject to the replacement cost provision outlined in this
    agreement) and whether the proposed repair/replacement is of like kind and
    quality and for similar occupancy as the insured buildings; and

j.

The insured/Plaintiff will have 24 months from the date of settlement to
    proceed with replacement in accordance with the policy and claim and the
    recoverable depreciation entitlements under this settlement failing which the
    insured/plaintiff will be deemed to have forever waived and forfeited any claim
    on the policies or under this settlement for recoverable depreciation.
    Proceeding with replacement shall be deemed to have occurred when the Insured/Plaintiff
    has entered into a legally binding construction contract for a building
    qualifying as replacement and has commenced construction;

k.

In the event the Insured/Plaintiff elects to replace, the
    insurer/defendant shall reasonably cooperate with the retained general
    contractor for reasonable construction draws in order to facilitate the
    financing of the replacement;

l.

Should the Insured/Plaintiff elect to replace by purchasing another
    building qualifying as replacement under the policy, the recoverable
    depreciation entitlement shall be released to the Plaintiffs solicitors upon
    the insurer/Defendant being served with the executed purchase agreement. Such
    funds will be held by the insureds/Plaintiffs solicitor pending closing of
    the real estate purchase. Should the real estate purchase not close the
    recoverable depreciation advanced shall be returned to the Insurer/Defendant;


Appendix
    B

May 1, 2015 Letter from
    Intacts Counsel to Champions Counsel

I write to confirm that we have
    reached settlement of the outstanding issues regarding the building loss claim
    on the basis of a further payment of $3 million. The settlement is subject to:

1.

The
    closing of the purchase of the properties at 88 - 90 Dynamic Drive in
    accordance with the Agreement of Purchase and Sale dated February 17, 2015
    reflecting a purchase price of $7,450,000.00, subject to the usual adjustments
    on closing.

2.

The
    Plaintiff/Insured will be expected to sign a Full and Final Release in usual
    form releasing the Defendant/Insurer from all building loss claims. (This
    settlement does not impact the outstanding business interruption claim as per
    the Settlement Agreement.)

3.

The
    Plaintiff/Insured together with yourself will be required to execute a sworn
    Declaration confirming that the purchase price represents the amount paid to
    complete the purchase and there are no side deals, oral or written, trusts or
    any other type of agreement which could in any way constitute a reversion or
    reduction of the amount represented by you and the Plaintiff/Insured as the
    purchase price.

4.

The
    Plaintiff/Insured will be obligated to provide to the Defendant/Insurer a copy
    of the closing documentation confirming closing of the transaction and
    indicating the exact amount paid for the purchase. Should the purchase price
    turn out to be less than represented then the amount payable by the
    Defendant/Insurer will be reduced by the amount to which the purchase price is
    less than $7,450,000.00.

Can you please advise who the
    settlement draft should be payable to. As you are aware, the Public Adjuster is
    asserting a claim on this money and has notified us accordingly. If the Public
    Adjuster is not going to be named on the settlement draft I will need either a
    Release from them or their signature on a payment Direction. I know you are
    aware of this issue and have been dealing with it.

I will forward to you early next
    week a draft Release.





[1]

The May 6, 2013 settlement is reproduced in full in Appendix
    A.



[2]

The body of this May 1, 2015 letter is reproduced in Appendix
    B.



[3]
The appeal record reveals that Champion and the vendor entered into a third
    agreement for the purchase of the Scarborough property dated June 26, 2015.
    Neither the parties nor the motion judge have treated that agreement as
    significant.



[4]

This is the second issue raised in Champions cross-appeal.


