



COURT OF APPEAL FOR ONTARIO

CITATION: Subway Franchise Restaurants of
    Canada Ltd. v. BMO Life Assurance Company, 2021 ONCA 349

DATE: 20210526

DOCKET: C68087

Juriansz, Huscroft and Jamal
    JJ.A.

BETWEEN

Subway Franchise Restaurants of
    Canada Ltd.

Applicant (Appellant)

and

BMO Life Assurance Company, Bank
    of Montreal, and Yonge Melinda Realty Inc.

Respondents (Respondents)

Christopher J. Cosgriffe and Mark T.
    Dzurman, for the appellant

Mitch Koczerginski, for the respondents

Heard: May 10, 2021 by video conference

On appeal from the judgment of Justice Edward
    M. Morgan of the Superior Court of Justice, dated January 22, 2020, with
    reasons reported at 2020 ONSC 371.

REASONS FOR DECISION

[1]

The appellant, Subway Franchise Restaurants of
    Canada Ltd. (Subway), is the tenant in a commercial lease and appeals from
    the dismissal of its application for relief from forfeiture after it failed to
    exercise an option to renew the lease within the timeframe specified in the
    lease.

[2]

The appellant is the franchisor of Subway
    restaurants in Canada. The appellant is provided with operational and
    administrative services by Franchise World Headquarters, LLC (FWH), a
    Connecticut limited liability company. FWH negotiates the leases that the
    appellant enters into and then sublets to its franchisees. The respondent, BMO
    Life Assurance Co., was not the original landlord but acquired this lease in
    October 2008.

[3]

The lease provided that the renewal option had
    to be exercised at least 9 months and not more than 12 months prior to the
    expiration of the term. However, the lease did not specify the expiration date
     it provided the lease would begin following fixturing and terminate 10 years
    later. The application judge found there was no contemporaneous documentation that
    indicated when the fixturing period ended and the lease began.

[4]

The documentation accompanying acquisition by
    BMO included an estoppel certificate executed by the appellant. The estoppel
    certificate certified that the lease expired on August 23, 2018. Consequently,
    the appellants option to renew had to be delivered between August 24, 2017 and
    November 23, 2017. The application judge found that the estoppel certificate
    was the one and only document that contain[ed] the termination date for the ten-year
    Lease. Both parties were in possession of the estoppel certificate.

[5]

FWHs central database recorded the lease as
    expiring on May 31, 2018. The application judge observed that the reason the incorrect
    date was entered into the FWH database was unexplained.

[6]

On February 1, 2017, FWH, on behalf of the
    appellant, sent a letter to BMO indicating its mistaken understanding of the
    term of the lease:

According to our records, the current lease
    term for the above-referenced location shall expire on May 31, 2018. Pursuant
    thereto, renewal notice is due on or before May 31, 2017. In the event that any
    of these dates differ from your records, please contact us in writing
    immediately as your silence will be an acknowledgement and authorization of
    their accuracy and our reliance.

[7]

The letter indicates the entries in the FWH
    database were incorrect in two respects. The termination date was wrong and the
    time when notice of renewal could be given was not consistent with the lease.

[8]

FWH had sent BMO similar letters in earlier
    years. All went unanswered. The application judge observed these were standard
    form letters automatically generated that the appellant sent to all of its
    landlords. FWH sent another letter to BMO on May 1, 2017 asking for
    confirmation that the lease expired on May 31, 2018 and the right of renewal
    had to be exercised before August 31, 2017. The FWH employee who authored the
    May 1, 2017 letter was aware of the date in the estoppel certificate and that
    the date in the estoppel certificate was different from the date in the FWH
    database.

[9]

In accordance with the incorrect date of May 31,
    2018 in the FWH database, the appellant purported to exercise the option to
    renew by providing notice on May 19, 2017. This attempt to renew was outside of
    the notice period.

[10]

The application judge rejected the appellants
    argument that BMO had failed to perform the contractual terms of the lease in
    good faith by remaining silent when the appellant had asked for confirmation of
    the termination date of the lease and the window for the leases renewal. In
    rejecting this argument, the application judge cited this courts decision in
CM
    Callow Inc. v. Zollinger
, 2018 ONCA 896, 429 D.L.R. (4th) 704. After the
    application judges decision, the Supreme Court reversed this courts decision:

C.M. Callow Inc. v. Zollinger
, 2020 SCC 45. In analysing the
    appellants submission that the application judge erred in finding BMO did not
    breach its duty of good faith, it is necessary to consider the application
    judges decision in light of the Supreme Courts decision in
Callow
.

[11]

The Supreme Courts decision in
Callow
does not disturb the application judges reasoning in this case. The
    application judge reasoned that the appellant had the estoppel certificate and
    did not make diligent efforts to comply with the terms of the lease. He said
    that the appellant could have and should have known and complied with the
    relevant dates for giving notice. Significantly, the application judge found
    that BMO did not intentionally obscure anything from the [appellant]. He
    found that BMO was up front and entirely transparent with the appellant, including
    disclosing its plans to redevelop the property and offering the appellant various
    forms of assistance and compensation for having to relocate.

[12]

The application judge concluded that the
    appellant could not cast blame on BMO because it had itself mis-diarized the
    termination date and so miscalculated the notice date for renewal of the Lease.
    He stated the duty of good faith did not require BMO to make sure that the
    appellant fulfilled its own obligations correctly.

[13]

The facts as found by the application judge are
    different from those in
Callow
in an important respect. In
Callow
the trial judge had found deception on the part of the defendant that was
    directly linked to the contract, and the breach of the duty of good faith was
    premised on that deception. Kasirer J. writing for himself and four other
    judges said, at para. 38, 
In circumstances where a party lies to or
    knowingly misleads another
, a lack of a positive obligation of disclosure
    does not preclude an obligation to correct the false impression
created
    through its own actions
 (emphasis added). At para. 104, Kasirer J. spoke
    of the duty to correct a misapprehension, but this duty arose because of the
    defendants false representations. In the absence of the defendants false
    representations, the failure to disclose a material fact, without more, would
    not be contrary to the standard: at para. 77.

[14]

Brown J. writing for himself and two other
    judges in
Callow
, said, at para. 133, the question is whether
the
    defendants active conduct contributed to a misapprehension
that could be
    corrected only by disclosing additional information and then stated clearly
    that a contracting party is not required to correct a misapprehension to which
    it has not contributed (emphasis added).

[15]

The Supreme Courts decision in
Callow
does not support the appellants attempt to invoke the duty of good faith
    performance of a contract in the circumstances of this case. Here, there was no
    finding, or any basis in the evidence to find, that BMO lied or knowingly
    misled Subway, created a false impression through its own actions, or actively
    contributed to Subways misapprehension. The application judge applied the
    correct legal principles to the facts he found.

[16]

The record amply supported the application
    judges determination that the appellant failed to make diligent efforts to
    comply with the terms of the lease and his determination that the appellant
    failed to properly deliver the renewal notice.

[17]

The appeal is dismissed. Costs of the appeal are
    fixed in favour of the respondent in the amount of $25,000 all inclusive.

R.G. Juriansz J.A.

Grant Huscroft J.A.

M. Jamal J.A.


