



COURT OF APPEAL FOR ONTARIO

CITATION: 1944949 Ontario Inc. (OMG ON THE PARK) v. 2513000
    Ontario Ltd., 2019 ONCA 628

DATE: 20190725

DOCKET: C65623

Feldman, Roberts and Fairburn JJ.A.

BETWEEN

1944949 Ontario Inc., carrying on business as OMG
    ON THE PARK

Applicant (Respondent)

and

2513000 Ontario Ltd.

Respondent (Appellant)

Shahzad Siddiqui, for the appellant

Paul Ingrassia, for the respondent

Heard: March 8, 2019

On appeal from the order of Justice A. Whitten of the Superior
    Court of Justice, dated June 20, 2018.

Roberts
    J.A.:

A.

Overview

[1]

The appellant appeals from the order of the application judge, terminating
    the commercial tenancy of the respondent and directing a trial, by way of action,
    on the issue of damages.

[2]

The respondent tenant operated a bakery and café out of the
    leased premises. When the premises HVAC system broke down in December 2017, a
    dispute arose between the parties as to the appellant landlords obligations under
    the lease to repair the system.

[3]

The respondent located new premises to rent and brought an
    application to terminate its lease effective June 30, 2018, and to direct a
    trial on the issue of damages incurred by the respondent because of the
    appellants alleged breach of its obligations under the lease.

[4]

The application judge found that the appellant had the obligation
    to repair and maintain the HVAC system and that it had fundamentally breached the
    lease by failing to do so. He also found that this fundamental breach
    invariably led to a breach of the respondents quiet enjoyment of the premises.
    The application judge ordered the termination of the lease and a trial, by way
    of an action, as to the damages suffered by the respondent.

[5]

The appellant landlord submits that the application judges order
    should be set aside and remitted for re-hearing. Its principal submission is
    that the application judge denied the appellant a procedurally fair hearing. In
    particular, the appellant submits that the application judge erred in refusing
    to adjourn the application and, alternatively, to admit the appellants
    supplementary affidavit. In the appellants view, by refusing to admit its
    supplementary affidavit, the application judge did not have a complete record
    that would have allowed him to properly interpret the lease and the parties
    respective obligations.

[6]

In the further alternative, the appellant argues that the
    application judge erred by interpreting the lease to find that the appellant
    had a duty to repair and maintain the leased premises HVAC system.

[7]

The respondent takes the position that the appellant received a
    procedurally fair hearing and that the application judge ought to be afforded
    deference over his discretion to control the judicial process of the matter
    before him and his reasonable interpretation of the lease.

[8]

The appellant also seeks leave to appeal the substantial
    indemnity costs awarded to the respondent.

[9]

I would allow the appeal in part. The application judges
    exercise of his discretion to refuse the appellants requested adjournment was
    reasonable.  While the application judges consideration of the supplementary
    affidavits filed by the parties was flawed, this did not prejudice the
    appellant on the substantive issues. The application judges interpretation of
    the lease was reasonable and it was open to him, on the record before him, to
    determine that the appellant had breached its lease obligations. However, I
    would set aside the order of substantial indemnity costs that resulted from the
    application judges error.

[10]

The appellant also seeks to adduce fresh evidence on this appeal
    by tendering the supplementary affidavit rejected by the application judge. In
    my view, this is not fresh evidence because it was reviewed by the application
    judge.  It is germane to the appeal and should properly be part of the appeal
    record. I would admit it on that basis.

B.

Issues

[11]

The two issues raised by the appellant in its factum and
    developed in argument on appeal can be summarized as follows:

i. Was the hearing of the
    application procedurally unfair and did it result in prejudice to the
    appellant?

ii. Did the application judge
    err in his interpretation of the lease?

C.

Analysis

(1)

Procedural unfairness

(a)

Standard of review

[12]

This ground of appeal involves the exercise of a judges
    discretion to manage and adjudicate proceedings in a manner that is
    proportionate to the importance and complexity of the issues, and to the
    amount involved, in the proceeding:
Rules of Civil Procedure
, R.R.O.
    1990, Reg. 194, r. 1.04(1.1).

[13]

It is well-established that absent a palpable and overriding
    error or an error in principle, the reasonable exercise of a judges case
    management discretion is owed deference on appeal. The standard for the
    reversal of a judges exercise of discretion was set out by the Supreme Court
    in
Penner v. Niagara (Regional Police Services Board)
, 2013 SCC 19,
    [2013] 2 S.C.R. 125, at para. 27:

A discretionary decision of a lower
    court will be reversible where that court misdirected itself or came to a
    decision that is so clearly wrong that it amounts to an injustice:
Elsom
    v. Elsom
,
[1989] 1 S.C.R. 1367,
at p.
    1375. Reversing a lower courts discretionary decision is also appropriate
    where the lower court gives no or insufficient weight to relevant
    considerations
: Friends of the Oldman River Society v. Canada
    (Minister of Transport)
,
[1992] 1 S.C.R.
    3
, at pp. 76-77.

(b)

Pre-hearing procedural history and filings before the application judge

[14]

To properly frame the first ground of appeal, it is necessary to
    understand the procedural background to the application.

[15]

The issuance of the respondents application on March 26, 2018 was
    the culmination of several fractious months of increasingly heated dealings
    between the parties. In the almost three months leading up to the hearing of
    the application, the appellant never objected to this matter proceeding by way
    of application. Rather, the parties agreed on a timetable for the delivery of
    materials, including affidavits and facta, as well as the conduct of
    cross-examinations.
[1]

[16]

On April 10, 2018, the parties consented to a court-ordered
    timetable for the completion of the various steps in the application. Of
    relevance to this appeal were the agreed-upon deadlines for the service and filing
    of the application record, including affidavit materials, and the conduct of cross-examinations,
    including the delivery of any answers to undertakings arising out of the latter,
    as well as the delivery of facta. There was no provision allowing for the
    delivery of any further affidavit materials following the completion of the
    cross-examinations.

[17]

The parties complied with the deadlines for the filing of
    responding and reply affidavits by April 20, 2018 and April 30, 2018,
    respectively, and the completion of the cross-examinations. In support of its
    application, the respondent filed the affidavit of its principal, Douglas
    Mattina, sworn March 26, 2018.  In response, the appellant filed the affidavit
    of its property manager, Elahe Vahed, sworn April 20, 2018. The respondent
    filed Mr. Mattinas April 30
th
reply affidavit. It filed its factum,
    authorities and compendium on schedule but the appellant did not. Neither
    delivered answers to undertakings by May 28, 2018.  Following the May 21, 2018
    cross-examination deadline, the respondent filed Mr. Mattinas June 6, 2018 supplementary
    affidavit.

[18]

As the application had been set down for hearing in Hamilton, it
    was subject to that jurisdictions application and motion administrative
    protocol. That protocol notes that where an application is scheduled for a
    specified week, as was the case here, the trial coordinator will contact
    parties or their counsel to advise them when the matter will be argued. The
    protocol expressly directs that when the matter is called for argument, it is
    expected to proceed. In accordance with the court-ordered timetable in this
    case, the application was scheduled to be heard during the week of June 18,
    2018. As a result, the parties had to be ready to proceed when called for
    hearing anytime during the week. The protocol and the court-ordered timetable also
    required the parties to bring a motion to amend the timetable or to request an
    adjournment of the application.

[19]

On June 6 and 8, 2018 (9 and 11 days respectively past the applicable
    deadline), the respondent provided answers to its undertakings from Mr.
    Mattinas cross-examination on his original and reply affidavits. On June 6,
    2018 (16 days following the court-imposed deadline for cross-examinations to be
    completed), the respondent delivered and filed, without leave or the
    appellants consent, Mr. Mattinas supplementary affidavit, sworn on June 6,
    2018.

[20]

In response to respondent counsels inquiry about delivery of the
    appellants factum, appellants trial counsel (not appeal counsel) asked for an
    adjournment of the application. On June 19, 2018, respondents counsel advised the
    appellants trial counsel that his client would not agree to the adjournment
    request.

[21]

On June 19, 2018, in the mid-afternoon, the trial co-ordinator
    advised the parties that the hearing of the application would take place the
    next day starting at 10:00 a.m.

[22]

On June 20, 2018, the date of the hearing of the application, the
    appellants trial counsel did not attend court until about 11:45 a.m. He failed
    to advise the court that he would be late. He asked the court to accept a
    motion record to adjourn the application. The application judge denied the appellants
    adjournment request.

[23]

Appellants counsel then sought to file the supplementary
    affidavit of Amir Sayar, one of the appellants principals, sworn June 19,
    2018, in response to Mr. Mattinas supplementary affidavit, as well as a
    factum, a compendium, and a brief of authorities.

[24]

In response to the appellants request to file the supplementary
    affidavit, factum and brief of authorities, the application judge concluded:

Its all about a heating and air
    condition[ing] system which was not functioning and was apparently in jeopardy
    in terms of its continued operation as a concern. I am  this is not a
    complicated issue. We are proceeding today and I am not receiving your
    materials because you had plenty of time to do it. End of story.  So if youd
    like to sit down, you may hear, hear your friend and then you can make whatever
    response you wish.
[2]


(c)

Parties positions

[25]

The appellant contends that it suffered procedural unfairness
    because the application judge erroneously refused to hear the appellants
    motion to adjourn the application or to accept the affidavit materials prepared
    in response to the respondents supplementary affidavit.  According to the
    appellant, the application judge ought not to have accepted the respondents
    supplementary affidavit that was filed after cross-examinations had occurred
    and well beyond the deadline imposed by the court-ordered timetable.

[26]

The respondent maintains that there was no procedural unfairness
    to the appellant:  there was no error in the application judges exercise of
    his discretion not to adjourn the application or admit the appellants supplementary
    materials. The respondent takes the position that the appellant suffered no
    prejudice because the rejected materials would have made no difference to the
    outcome of the application.

(d)

Was the appellant denied procedural fairness and did it suffer prejudice
    as a result?

[27]

It is axiomatic that parties to a proceeding are entitled to a
    fair hearing. A fair hearing of an originating process requires that all
    parties are given a reasonable opportunity to be heard. A reasonable opportunity
    must be meaningful. It is not, however, unlimited. As a result, the court has a
    wide discretion to control the process before it, which includes refusing
    adjournment requests and restricting the submission of evidence and argument. In
    exercising this discretion, the court must balance the parties respective
    interests in a full and fair hearing. This is consistent with the courts
    obligation to ensure the just, most expeditious and least expensive
    determination of every proceeding.


[28]

In my view, there was no error in the application judges denial
    of the requested adjournment. As the application judge correctly observed, the
    appellant had adequate time to respond or object to the respondents late
    service of materials. Prior to the hearing, the appellant had made no objection
    to the respondents late service of the answers to undertakings and the
    supplementary affidavit. Despite having these materials for several days and
    knowing that the application could be called for hearing any day during the
    week of June 18
th
, the appellant did not request an adjournment
    until the eve of the hearing nor seek to file any responding materials until
    the day of the hearing. In these circumstances, the application judges refusal
    of the adjournment was reasonable and in keeping with his duty to fairly manage
    the proceedings in accordance with the parties reasonable expectations that
    the application would proceed in accordance with the agreed upon timetable.

[29]

The more critical question on this appeal is whether the
    application judges failure to admit the appellants supplementary affidavit to
    respond to the respondents late-delivered supplementary affidavit resulted in prejudice
    to the appellant.

[30]

In my view, the application judges approach was flawed because
    he failed to turn his mind to whether leave should be granted under r. 39.02(2)
    of the
Rules of Civil Procedure
to admit the parties supplementary
    affidavits. Instead, he rejected the appellants supplementary affidavit but admitted
    the respondents supplementary affidavit without addressing whether leave should
    be granted to permit the respondent to file it following cross-examinations in admitted
    contravention of r. 39.02(2), and in breach of the court-ordered timetable. However,
    excepting his award of substantial indemnity costs to the respondent, the
    application judges flawed approach did not taint his interpretation of the
    lease or finding of the appellants breach.

[31]

The relevant portions of r. 39.02(2) for the purposes of this
    appeal are:

A party who has cross-examined on
    an affidavit delivered by an adverse party shall not subsequently deliver an
    affidavit for use at the hearing
without leave
or consent, and the court
    shall grant leave, on such terms as are just, where it is satisfied that the
    party ought to be permitted to respond to any matter raised on the
    cross-examination with evidence in the form of an affidavit [Emphasis added.]

[32]

Rule 39.02(2) prohibits the use at a hearing of an affidavit delivered
    after cross-examinations without leave of the court or the consent of the
    parties
: Lacey v. Kakabeka Falls Flying Inc.
, 2018 ONCA 1007, at para.
    13;
Lockridge v. Director, Ministry of the Environment
, 2013 ONSC 6935,
    322 O.A.C. 345 (Div. Ct.), at para. 23;
Crown Resources Corp. S.A. v.
    National Iranian Oil Co.
,
2005
    CanLII 6053 (Ont. Div. Ct.), at para. 13
.

[33]

The court must consider the following criteria in determining
    whether a party should be granted leave to respond to a matter raised on
    cross-examination:

1)   Is the evidence relevant?

2)   Does the evidence respond to
    a matter raised on the cross-examination, not necessarily raised for the first
    time?

3)   Would granting leave to file
    the evidence result in non-compensable prejudice that could not be addressed by
    imposing costs, terms, or an adjournment?

4)   Did the
    moving party provide a reasonable or adequate explanation for why the evidence
    was not included at the outset?

See:
Lockridge
, at para. 24;
First Capital
    Realty Inc. v. Centrecorp Management Services Ltd.
(2009), 258 O.A.C. 76
    (Div. Ct.), at para. 13.

[34]

In
First Capital Realty
, at para. 14, the Divisional
    Court articulated the preferred approach to these criteria:

A flexible, contextual approach is
    to be taken in assessing the criteria relevant to rule 39.02(2), having regard
    to the overriding principle outlined in Rule 1.04 of the
Rules of Civil
    Procedure
that the rules are to be interpreted liberally to ensure a just,
    timely resolution of the dispute. An overly rigid interpretation can lead to
    unfairness by punishing a litigant for an oversight of counsel. [Citations
    omitted.]

[35]

The application judge does not appear to have considered these
    factors or to have adopted a flexible, contextual approach. He made no
    reference to the provisions of r. 39.02 or advert to its leave requirement. He
    should have done so. Rather, he focussed principally on the late submission of
    the appellants materials. He should have explained why he accepted the
    respondents supplementary affidavit, which was also filed in breach of the
    court-ordered timetable, while he refused the appellant the opportunity to
    respond. There was no issue raised of any prejudice if the appellants
    proffered materials were admitted.

[36]

However, apart from the application judges award of substantial
    indemnity costs, I do not agree that the application judges exclusion of the
    appellants supplementary affidavit and the inclusion of the respondents
    supplementary affidavit resulted in an unfair hearing with an incomplete record
    that caused prejudice to the appellant.

[37]

The respondents supplementary affidavit largely served to update
    the court on what had occurred between the parties since the cross-examinations
    on the earlier affidavits had been completed. In general, the affidavit
    addressed rental payment issues, including allegations of threats and
    harassment by the appellants property manager, Elahe Vahed, the timing of the
    respondents intended departure from the premises, and an HVAC technicians
    visit to the premises on June 3, 2018 that the appellant had arranged without notifying
    the respondent.

[38]

The appellants proffered supplementary affidavit, while mostly referencing
    events that had occurred since the cross-examinations, also referenced matters
    that long pre-dated the cross-examinations and were or could have been
    addressed in the appellants responding affidavit materials.  Among other
    things, Mr. Sayars affidavit responded to Mr. Mattinas supplementary
    affidavit in addressing the parties failure to abide by the court-ordered
    timetable, the appellants ongoing attempts to inspect the HVAC system
    (including the unscheduled technician visit addressed in the respondents
    supplementary affidavit), the rental payment issues and the allegations against
    Ms. Vahed. It also referred to condominium rules relating to repairs, the
    history of the property, including the appellants acquisition of the rental
    property in 2016, and HVAC repairs that had been completed.

[39]

In my view, there was nothing new in the respondents
    supplementary affidavit that made any difference to the result of the substantive
    lease issues to be determined on the application. Nor would the appellants
    supplementary affidavit have affected the outcome. Moreover, it does not appear
    that the application judge relied in any material way upon the contents of the
    respondents supplementary affidavit to reach his interpretation of the lease
    or his finding of the appellants breach.

[40]

Though the application judge observed in his reasons that, to
    date, the appellant had not properly reconstituted the HVAC system, and
    referred to the appellants continued inaction in that regard, his
    fundamental breach finding did not depend on the appellants conduct after May
    15, 2018, as outlined in the respondents supplementary affidavit. As the
    application judge stated, the record was quite complete with the lease, the
    emails between the respondent and the appellants property manager (the affiant
    of the appellants responding affidavit who was cross-examined), and the
    analysis of the HVAC technician, completed in January 2018.

[41]

I also recognize that the application judge
    could be seen as referring in part to disagreements between the appellants
    property manager and the respondent over rent in concluding that, relying on
    the behaviour of the landlord in the last six months, the respondent was
    entitled to treat the lease at an end. The respondents supplementary affidavit
    did address a disagreement over rent that arose following the completion of
    cross-examinations. However, that dispute mirrored earlier disputes over the
    same issues that were detailed in the earlier affidavits that had been
    cross-examined upon. In other words, it was more of the same. Moreover, the
    application judge specifically stated that the property managers allegations
    of non-payment of rent 
do not detract from
the nature of a fundamental breach of contract. That statement
    clarifies that the key elements of the record enumerated above, and not the
    contents of the respondents supplementary affidavit, were the basis of the
    finding that there had been a fundamental breach.

[42]

As a result, I see no prejudice to the appellant
    as a result of the application judges case management decision to refuse
    admission of its supplementary affidavit. It made no difference to the outcome
    of the substantive lease issues on the application.

[43]

However, the same cannot be said with respect to the application
    judges award of substantial indemnity costs. The application judge relied on the
    unchallenged evidence as set out in the respondents supplementary affidavit about
    the appellants alleged harassment of the respondent through its property
    manager, Ms. Vahed. He used this evidence to support his finding that the
    appellant engaged in litigation misconduct that warranted an award of
    substantial indemnity costs.

[44]

This was an unfair outcome that resulted from the application
    judges unreasonable exclusion of the appellants supplementary affidavit in
    which Mr. Sayar provided a different version of events.

[45]

As a result, I would set aside the award of substantial indemnity
    costs.

(2)

Did the application judge err in his interpretation of the lease?

[46]

The appellant submits that the application judge misconstrued the
    terms of the lease: it was the respondents obligation under the lease to find
    someone to carry out any repairs to the HVAC system; the appellant fulfilled
    its lease obligations by paying for any repairs.

[47]

I would not give effect to these submissions. In my view, the
    application judges interpretation of the non-standard form provisions of the
    lease was reasonable. Absent a palpable or overriding error or an extricable
    error of law, the application judges interpretation of the lease is subject to
    deference on appeal:
Deslaurier Custom Cabinets Inc. v. 1728106 Ontario
    Inc.
,
2016 ONCA 246
,
130
    O.R. (3d) 418, at paras. 25-31, affd 2017 ONCA 293, leave to appeal to S.C.C.
    refused, 37039 (October 19, 2017).

[48]

The application judge reviewed the terms of the lease between the
    parties and found that the appellant had a duty to repair the HVAC system that
    went beyond simply reimbursing the respondent for repairs. This interpretation reasonably
    arises from the following express lease provisions:

·

Repair and Maintenance of the in-suite HVAC unit shall be paid
    for by the Landlord throughout the Lease Term;

·

Schedule B required the landlord to: Provide HVAC system in good
    working order.

[49]

Further, the appellant landlords obligation to repair the HVAC
    system is a reasonable construction flowing from the respondents right to
    quiet enjoyment and fitness of the premises as an operational café; the lease
    expressly notes that the premises shall be used for a food shop.

[50]

I see no error here that would
    warrant appellate intervention.

D.

Disposition

[51]

For these reasons, I would allow the appeal in part and set aside
    the award of substantial indemnity costs. In its place, I would award the respondent
    its partial indemnity costs of the application in the amount of $11,000,
    inclusive of disbursements and taxes. I would otherwise dismiss the appeal.

[52]

The respondent was largely successful on this appeal and is
    therefore entitled to partial indemnity costs in the amount of $7,500,
    inclusive of disbursements and applicable taxes.

Released: July 25, 2019
    K.F.

L.B.
    Roberts J.A.

I
    agree. K. Feldman J.A.

I
    agree. Fairburn J.A.





[1]

The parties proceeded from the outset
    by way of application to determine both the interpretation of the lease as well
    as whether the landlord had breached the lease. The breach issue was a disputed
    factual issue and was the subject of much of the evidence on the application.
    Because no party raised as a ground of appeal the propriety of proceeding by
    application rather than by action, these reasons do not address that issue.



[2]

In the course of the hearing, the appellant also sought to
    bring a motion to convert the application into an action, which was denied by
    the application judge.  That decision is not the subject of this appeal.


