



COURT OF APPEAL FOR ONTARIO

CITATION:  2249778 Ontario Inc. v. Smith (Fratburger), 2014
    ONCA 788

DATE: 20141107

DOCKET: C58342

Blair, Pepall and Hourigan JJ.A.

BETWEEN

2249778 Ontario Inc.

Applicant (Appellant)

and

Glenn Smith carrying on business as
    Fratburger

Respondent
    (Respondent)

Tiffany Soucy, for the appellant

Andrew McCoomb, Timothy Fleming and Dana Carson, for the
    respondent

Heard: August 19, 2014

On appeal from the judgment of Justice James W. Sloan, of
    the Superior Court of Justice, dated January 7, 2014, with reasons reported at
    2014 ONSC 93.

Pepall J.A.:

Introduction

[1]

This appeal concerns the interpretation of a fast-food restaurant lease
    and whether the permitted use provision in the lease allows for the
    installation of an automatic teller machine (ATM).

Facts

[2]

The appellant, 2249778 Ontario Inc. (the Landlord), owns a strip mall
    in Waterloo, Ontario.  It leased two units in the mall to the respondent, Glenn
    Smith (the Tenant), carrying on business as Fratburger.  The Tenant runs a
    fast-food restaurant that sells, among other things, hamburgers, hot dogs,
    chicken sandwiches, French fries and poutine.  An estimated three-quarters of
    the Tenants customers are university students.

[3]

The parties entered into a lease dated May 1, 2011.  The Tenant stated
    that the lease was drafted and presented to the Tenant by the Landlord.  Few,
    if any, amendments were made prior to its execution.  In s. 10.1, which was
    headed Permitted Use, the Tenant covenanted to use the Premises
only for the purpose
set out in Section 1.1(g)(v)
    of the Lease and for no other purpose.

[4]

Section 1.1(g)(v) described the use as:

A fast food restaurant primarily selling hamburgers, hot dogs,
    chicken sandwiches, french fries, poutine and individual servings of soft
    drinks, coffee and tea and as ancillary thereto, the Tenant may use a minor
    portion of the Premises for offices as reasonably required for the Tenants
    business from the Premises and for no other purpose.  The Tenant shall be
    permitted, at its sole expense, to apply for and obtain a licence to serve
    alcoholic beverages with this use.

[5]

The lease also contained numerous provisions under a heading entitled
    Conduct and Operation of Business including ss. 10.8(a) and (d) which stated
    as follows:

(a)   operate its business with due
    diligence and efficiency and maintain an adequate staff to properly serve all
    customers; own, install and keep in good order and condition free from liens or
    rights of third parties, fixtures and equipment of first class quality; and
    carry at all times such stock of goods and merchandise of such size, character
    and quality as will produce the maximum volume of sales from the Premises
    consistent with good business practices;

(d)   stock in the Premises only merchandise the Tenant intends
    to offer for retail sale from the Premises, and not use any portion of the
    Premises for office, clerical or other non-selling purposes except minor parts
    reasonably required for the Tenants business in the Premises.

[6]

In the parties negotiations, the topic of an ATM was never discussed.

[7]

After the lease was executed, the Tenant immediately installed and
    operated an ATM on the leased premises.  The Landlord stated that the Tenant
    did not obtain the Landlords consent to such use nor did he seek an amendment
    to the lease to include the operation of an ATM as a permitted use.  The Tenant
    stated that he did not think that anything in the lease prevented him from
    installing an ATM.

[8]

The Tenant explained that debit card machines are problematic for his
    business because each transaction costs approximately 50 cents which he either
    has to absorb himself or charge to his cost-conscious student customers. 
    Furthermore, customers often try to use debit machines as if they were ATMs and
    ask for cash back with purchases.  These requests result in limited cash on
    hand for his business.  Accordingly, the Tenant explained that he preferred not
    to use debit machines.  In contrast, an ATM is convenient for students and
    other customers.  The Tenants evidence was that he was not interested in
    running a bank; the ATM was nothing more than an economical way to make his
    business more effective and attractive to customers.

[9]

About a year after it was installed, the Landlord took issue with the
    presence of the ATM.  The Landlord stated that he attempted negotiations to
    resolve the issue.  They were unsuccessful.

[10]

The
    Landlord then commenced an application for a declaration that the lease did not
    permit an ATM on the premises and an order requiring the Tenant to remove it.

The Application

[11]

Before
    the application judge, the Landlord argued that the operation of an ATM was not
    a permitted use under the lease and that, since non-fast food customers could
    access the ATM, the Tenant was effectively offering banking services on the
    premises.

[12]

The
    Tenant countered that students often did not carry cash, and debit card
    transactions cost him too much money.  He argued that the ATM was a tool to
    facilitate his business; it was convenient for customers and lowered his business
    costs.

[13]

The
    application judge accepted the Tenants position and dismissed the Landlords
    application.  He found that the use of the ATM was for appropriate business
    reasons: to assist the Tenant in keeping his costs low and his clients happy.  The
    installation of an ATM that simply dispensed cash did not constitute the
    offering of banking services.  He concluded at para. 12 of his reasons:

On the evidence before me, the installation of the ATM does not
    in any way change the purpose of the premises, which is a fast-food restaurant. 
    The primary focus of the establishment and the attendance of its patrons, is
    for the consumption of food.

Grounds of Appeal

[14]

The
    Landlord submits that the application judge erred in law by ignoring the plain,
    ordinary and unambiguous meaning of the words in the lease; failed to consider
    whether the ATM was a permitted use under the lease; and erred in his
    interpretation of s. 10.8(a) of the lease.  The Landlord argues that the
    application judges interpretation resulted in a commercially absurd result and
    violated the fundamental principle of certainty of contract.  Lastly, the Landlord
    submits that future planning and the ability to provide exclusivity to other potential
    tenants of the strip mall should not be negatively affected by use that is not
    contemplated by the lease it entered into with the Tenant.

[15]

In
    addition, the Landlord asks this court to admit fresh evidence consisting of an
    affidavit of one of the Landlords employees.  In the affidavit, the employee
    states that he attended Fratburger for the sole purpose of using the ATM.  The ATM
    charged him a $2.00 fee payable to a non-party.  The Landlords motion to admit
    fresh evidence is unopposed.  While of questionable relevance, given that the
    Tenant is unopposed and that the fresh evidence provides additional context, I
    would grant the Landlords motion to admit fresh evidence:
Katokakis v.
    William R. Waters Limited
(2005), 194 O.A.C. 353, at para. 5.

Analysis

(a)

Applicable Law

(i)

Standard of Review

[16]

In
Sattva
Capital Corp. v. Creston Moly Corp.
, 2014 SCC 53, 373
    D.L.R. (4th) 393, the Supreme Court recently addressed the appropriate standard
    of review to be applied to the interpretation of a contract.  Absent an
    extricable question of law, questions of interpretation are no longer to be
    treated as pure questions of law reviewable on a correctness standard.  Rather,
    as Rothstein J., writing for the court, stated at para. 50: Contractual
    interpretation involves issues of mixed fact and law as it is an exercise in
    which the principles of contractual interpretation are applied to the words of
    the written contract, considered in light of the factual matrix.

[17]

Rothstein
    J. recognized that extricable questions of law would continue to include 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:
Sattva
at para. 53.  However, he cautioned appellate courts not to be too quick to
    identify extricable questions of law, stating at para. 55:

[T]he goal of contractual interpretation, to ascertain the
    objective intentions of the parties, is inherently fact specific.
The close relationship between the selection and application of
    principles of contractual interpretation and the construction ultimately given
    to the instrument means that the circumstances in which a question of law can
    be extricated from the interpretation process will be rare.


[18]

Accordingly,
    questions of contractual interpretation will generally attract a deferential
    standard of review:
Sattva
, at para. 52 and
Martenfeld v. Collins
    Barrow Toronto LLP
, 2014 ONCA 625, 116 O.R. (3d) 401 (C.A.), at para. 41.

(ii)

Principles of Contractual Interpretation

[19]

As
    stated in
Ventas, Inc. v. Sunrise Senior Living Real Estate Investment
    Trust
,
2007 ONCA 205, 85
    O.R. (3d) 254 (C.A.), at para. 24, a commercial contract is to be interpreted:

(a)

as a
    whole, in a manner that gives meaning to all of its terms and avoids an
    interpretation that would render one or more of its terms ineffective;

(b)   by determining the intention of
    the parties in accordance with the language they have used in the written
    document and based upon the cardinal presumption that they have intended what
    they have said;

(c)   with regard to objective evidence
    of the factual matrix underlying the negotiation of the contract, but without
    reference to the subjective intention of the parties; and (to the extent there
    is any ambiguity in the contract),

(d)   in a fashion that accords with
    sound commercial principles and good business sense, and that avoids a
    commercial absurdity.

[20]

In
Sattva
, the Supreme Court addressed the issue of surrounding
    circumstances.  Rothstein J. wrote, at para. 57:

While the surrounding circumstances will be considered in
    interpreting the terms of a contract, they must never be allowed to overwhelm
    the words of that agreement.  The goal of examining such evidence is to deepen
    a decision-makers understanding of the mutual and objective intentions of the
    parties as expressed in the words of the contract.  The interpretation of a
    written contractual provision must always be grounded in the text and read in
    light of the entire contract.  While the surrounding circumstances are relied
    upon in the interpretive process, courts cannot use them to deviate from the
    text such that the court effectively creates a new agreement.  [Citations
    omitted.]

[21]

Evidence
    of surrounding circumstances should consist only of objective evidence of the
    background facts at the time of execution of the contract: knowledge that was
    or reasonably ought to have been within the knowledge of both parties at or
    before the date of contracting:
Sattva
,

at para. 58.

[22]

Finally,
    the rule of contra proferentum applies in cases where the contractual terms are
    ambiguous:
Consolidated-Bathurst Export Ltd. v. Mutual Boiler and Machinery
    Insurance Co.
, [1980] 1 S.C.R. 888, at p. 900 and
Manulife Bank of
    Canada v. Conlin
, [1996] 3 S.C.R. 415, at pp. 425-426.

(b)

Analysis

[23]

In this appeal, the Landlord challenges the application judges interpretation
    of the lease and his finding that the installation and operation of an ATM did
    not change the fast-food restaurant purpose of the premises and therefore was a
    permitted use under the lease.

[24]

The
    application judge found that the use of the ATM was for appropriate business
    reasons, to assist the Tenant in keeping his costs low and his clients happy. 
    The application judge considered the language of the lease.  He found that the ATM
    fell within the definition of permitted use because it was the tool used to
    achieve the business objectives of running the fast-food restaurant: the
    installation of the ATM does not in any way change the purpose of the premises,
    which is a fast food restaurant.  Furthermore, the application judge found
    that the use of an ATM was not a purpose for which the Tenant was using the
    premises.  Specifically, the application judge rejected the suggestion that the
    Tenant was offering banking services.

[25]

These
    are findings of mixed fact and law which are entitled to deference.

[26]

The
    lease did not define fast-food restaurant; was silent on other equipment and
    business tools such as a cash register and a debit terminal that are critical
    to a fast-food restaurant and implicitly included in the permitted use of the
    premises; and nothing in the lease prohibited the installation and operation of
    an ATM.  Lastly, the application judge did not base his decision on s. 10.8(a)
    of the lease as alleged by the Landlord.

[27]

Applying
    the principles articulated in
Sattva
, I am unable to conclude that
    there was any error of law or mixed fact and law that would justify appellate
    intervention.

[28]

From
    a practical perspective, I also reject the Landlords submission that such a
    result produces uncertainty in the law.  First, this case is confined to these
    parties and interpretation of this particular lease.  Second, it is open to
    parties to a commercial lease to specifically include the installation and
    operation of an ATM as a prohibited activity in the lease.

Disposition

[29]

I
    would therefore dismiss the appeal and order that the Landlord pay the Tenant its
    costs of the appeal fixed in the amount of $15,000 inclusive of disbursements
    and applicable taxes.

Released:

NOV -7 2014                                    S.E.
    Pepall J.A.

RAB                                                I
    agree R.A. Blair J.A.

I
    agree C.W. Hourigan J.A.


