



COURT OF APPEAL FOR ONTARIO

CITATION: McRae Cold Storage Inc. v. Nova Cold Logistics ULC, 2019 ONCA 452

DATE: 20190531

DOCKET: C66367

Sharpe, Trotter and Harvison Young JJ.A.

BETWEEN

McRae Cold Storage Inc.

Applicant (Appellant)

and

Nova Cold Logistics ULC

Respondent (Respondent)

Ronald Birken, for the appellant

Emily Sherkey and Winston Gee, for the respondent

Heard: May 28, 2019

On appeal from the judgment of Justice Sandra Nishikawa of
    the Superior Court of Justice, dated December 13, 2018, with reasons reported
    at 2018 ONSC 7494.

REASONS FOR DECISION

(1)

Factual Background

[1]

This appeal arises out of a commercial lease
    between the parties. The appellant McRae Cold Storage Inc. leased space in a
    cold storage facility owned by the respondent Nova Cold Storage Logistics ULC
    pursuant to a lease agreement dated March 2013 (the Lease). While otherwise a
    gross lease, a clause in the Lease allowed Nova Cold to pass along certain
    increases in energy costs to McRae. Although the Lease was for a 5-year term,
    it provided McRae with an option to renew, if the Lease was in force and McRae
    was not in default under any terms of the Lease on the date it exercised the
    option to renew.

[2]

Beginning in the summer of 2016, a dispute arose
    between the parties as to the proper interpretation of the clause which allowed
    Nova Cold to pass along increased energy costs to McRae. Nova Cold claimed it
    was entitled to additional payment under the clause. McRae continued to pay its
    monthly rent, but did not pay any of the increased energy costs claimed by Nova
    Cold.

[3]

In March 2017, Nova Cold advised McRae that it
    considered McRaes failure to pay the increased energy costs claimed to be a
    default under the Lease. Nova Cold reiterated this position in April and again
    in July 2017, and also informed McRae that if it failed to pay it would not be
    permitted to exercise its option to renew the Lease. By this time, both parties
    had retained counsel and McRae had indicated that it might need to commence an
    application for the interpretation of the energy provisions if they could not
    agree.

[4]

At the end of September 2017, McRae wrote to
    Nova Cold advising that it was exercising the renewal option. Nova Cold
    responded a few days later and rejected the purported renewal, stating again that
    since McRae was in default it could not renew the Lease.

[5]

McRae took no further steps for a number of
    months.

[6]

In early March 2018, McRae brought an
    application seeking an interpretation of the energy clause. Among other relief,
    it sought: (i) a declaration that it was not in default of its obligations
    under the Lease (i.e. the energy clause) and that it had properly exercised its
    option to renew; and (ii) in the event that McRae was in default, a declaration
    that it was entitled to relief from forfeiture. On March 15, 2018, McRae
    deposited the amount claimed by Nova Cold ($136,000) as the increased energy
    costs with its solicitors. This money was to be released to Nova Cold if it was
    determined to be owing, and if McRae was granted renewal of the lease. The
    Lease expired on March 31, 2018.

(2)

The Decision Below

[7]

The application judge, following a comprehensive
    analysis of the law and the evidence before her, found that McRae was in breach
    of its obligation to pay for increased energy costs as contemplated by the
    Lease. As a result, McRae was in default and not entitled to renew.

[8]

The application judge
    also declined to provide McRae relief from forfeiture. Citing this courts
    decision in
120 Adelaide Leaseholds Inc. v. Oxford Properties Canada
    Ltd
., [1993] O.J. No 2801 (C.A.), the application
    judge found that the courts equitable jurisdiction to grant relief from forfeiture
    was more limited in cases of a failure to perform conditions precedent to a
    right. She found that McRae had failed to act with due diligence, and thus that
    it was not an appropriate case to provide relief from forfeiture.

(3)

Issues and Analysis

[9]

On appeal, McRae does not take issue with the
    application judges interpretation of the energy clause and conclusion that it
    was in default under the Lease. Rather, it appeals only on the basis that the application
    judge erred in declining to grant relief from forfeiture. To this end, it
    argues that the application judge applied the wrong legal test, as she failed
    to apply the test identified in
Saskatchewan River Bungalows Ltd v.
    Maritime Life Assurance Company
, [1994] 2 S.C.R. 490, as structuring a
    courts discretion to provide relief from forfeiture.

[10]

We see no merit in this position. Given the
    application judges interpretation of the Lease, which McRae does not
    challenge, there can be no question that McRae was in default under the Lease.
    As a result, it had not satisfied one of the conditions precedent to the
    renewal of the Lease. The application judge correctly noted that where
    preconditions to the renewal of a lease are in issue, the jurisdiction to grant
    relief from forfeiture is narrower than the three-pronged test applied in cases
    such as
Saskatchewan River Bungalows
.
With respect to the renewal of a lease, a precondition
    for the exercise of any such equitable discretion is that the tenant has made
    diligent efforts to comply with the terms of the lease which are unavailing
    through no default of his or her own:

120 Adelaide Leaseholds Inc.,
at para. 9;
Ross v. T. Eaton Co
. (1992), 11 O.R. 115 (C.A.), at pp. 124-125;
1383421
    Ontario Inc. v. Ole Miss Place
(2003), 67
    O.R. (3d) 161 (C.A), at para. 80;
Mapleview-Veterans Drive
    Investments Inc.

v. Papa
    Kerrollous IV Inc.
, 2016 ONCA 93, 344
    O.A.C. 363, at paras. 55-56. The application judge did not apply the wrong
    legal test.

[11]

Nor is there any basis to interfere with the
    application judges conclusion that McRae failed to exercise due diligence in
    seeking to comply with the terms of the Lease. In light of the correspondence
    between the parties, there was an ample evidentiary basis upon which to
    conclude that McRae had not acted with diligence to cure its default under the
    Lease or to obtain a judicial interpretation of the impugned energy clause. We
    would not interfere with the application judges conclusion in this regard.

[12]

Accordingly, the appeal is dismissed. As agreed by the parties,
    costs are payable by the appellant to the respondent in the amount of $24,000
    inclusive.

Robert J. Sharpe J.A.

G.T.
    Trotter J.A.

A. Harvison Young
    J.A.


