



COURT OF APPEAL FOR ONTARIO

CITATION: Crescent Hotels and Resorts Canada Company v.
    2465855 Ontario Inc., 2019 ONCA 268

DATE: 20190404

DOCKET: C66013

Lauwers, Benotto and Brown JJ.A.

BETWEEN

Crescent Hotels and Resorts Canada Company

Plaintiff (Respondent)

and

2465855 Ontario Inc.

Defendant (Appellant)

David Woodfield, Matthew Karabus and Heyla Vettyvel, for
    the appellant

Tim Pinos and Carly Cohen, for the respondent

Heard: March 29, 2019

On appeal from the judgment of Justice Carole J. Brown of
    the Superior Court of Justice, dated September 21, 2018 with reasons reported
    at 2018 ONSC 5508.

REASONS FOR DECISION

I.        OVERVIEW

[1]

The appellant, 2465855 Ontario Inc. (the Owner), owns a hotel in
    Toronto. On July 22, 2015, the Owner entered into a Hotel Management Agreement
    with the respondent, Crescent Hotels and Resorts Canada Company (the
    Manager), for a term of 10 years.

[2]

In May 2016, the Owner terminated the Agreement. The Owner contended that
    it was entitled to terminate for Cause-Manager which, under the Agreement,
    was defined to include the occurrence of a default under this Agreement of
    which Manager receives written notice (as provided in Section 12.5), that is
    not cured prior to the lapse of any applicable notice and grace periods set
    forth in Section 12.11. Section 12.11(a) of the
    Agreement defined events of default as including the failure of a party to
    perform, keep or fulfill a covenantin any material respect and the
    continuance of such a failure for more than 30 days after receipt of a notice
    of default.

[3]

In letters dated April 7 and 8, 2016, the Owner enumerated complaints
    about the Managers performance. In its letter of April 19, 2016, the Owner
    advised the Manager that those complaints constituted events of default under
    the Agreement which, if not cured by May 7, 2016, would result in the
    termination of the Agreement. The Manager disputed that the complaints amounted
    to events of default and contended that the Owner had failed to give proper
    notice. By letter dated May 11, 2016 the Owner terminated the Agreement,
    effective May 20, 2018.

[4]

The Manager brought this action alleging that the Owner lacked cause to terminate
    the Agreement. It argued that the Owner was required to pay the Manager an
    early termination fee pursuant to s. 4.2(b) of the Agreement because the Owner
    had terminated the Agreement without cause during the first two years of the
    term of this Agreement.

[5]

The Manager moved for summary judgment for payment of the early
    termination fee, together with certain expenses. The motion judge granted
    summary judgment for those amounts, which totalled $1,026.652.44, plus costs.

[6]

We dismissed the Owners appeal at the hearing, with reasons to follow.
    These are those reasons.

II.       ANALYSIS

[7]

The Owner advances several grounds of appeal.

Failure to invoke expressly the
    rule 20.04(2.1) evidence-assessment powers

[8]

First, the Owner submits that the motion judge erred in principle
    because, having stated that she was not exercising her evidence-assessment
    powers under r. 20.04(2.1) of the
Rules of Civil Procedure
, she in
    fact did so, writing at para. 19 of her reasons that she had weighed the
    evidence contained in the affidavits. The Owner contends that the motion judge
    erred in principle by weighing evidence without expressly invoking her
    evidence-assessment powers.

[9]

Under r. 20.04(2.1), in determining whether there is a genuine issue
    requiring a trial, a judge may exercise several evidence-assessment powers:
    weighing the evidence; evaluating the credibility of a deponent; and drawing
    any reasonable inference from the evidence. These powers are presumptively
    available to a motion judge; they are not exceptional; and they may be
    exercised provided their use is not against the interests of justice:
Hryniak
    v. Mauldin
, 2014 SCC 7, [2014] 1 S.C.R. 87 at paras. 66 and 67. Where
    factual disputes exist on the written motion record, a judge most likely will
    resort to such powers when evaluating whether a genuine issue requiring a trial
    exists.

[10]

It
    follows that where a judge weighs the evidence filed on a summary judgment
    motion  as the reasons of the motion judge in this case clearly disclose that
    she did  the judge should acknowledge candidly that she is exercising her r.
    20.04(2.1) powers and then go on to explain the basis for any resulting
    findings of fact. In this case, the better course would have been for the
    motion judge to make such an acknowledgement. However, at the end of the day,
    the motion judge simply employed evidence-assessment powers that were otherwise
    available to her under r. 20.04(2.1) and she explained the basis for her
    findings. In those circumstances, we see no error in principle that would merit
    appellate intervention.

The test for failure to perform
    a covenant in any material respect

[11]

As
    noted, s.12.11(a) of the Agreement defined events of default as including the
    failure of a party to perform, keep or fulfill a covenant
in any material respect
 and the continuance of such a
    failure for more than 30 days after receipt of a notice of default. [emphasis
    added] In para. 25 of her reasons, relying on the decision in
Guarantee
    Company of North America v. Gordon Capital Corp.
,
[1999]
    3 S.C.R. 423, at para. 44,
the motion judge held that a [m]aterial
    breach is one that is material, substantial and goes to the root of the
    contract. As applied to the covenants in the Agreement, it would be a breach
    that deprived the Owner of the entirety of all benefits of the contract or the
    very thing the parties contracted for.

[12]

The
    Owner submits the motion judge erred in interpreting the phrase in any
    material respect in the Agreement as requiring that a breach rise to the level
    of one that goes to the root of the contract in order for the Owner to assert
    it as an event of default.

[13]

We
    accept that the motion judge misinterpreted the term in any material respect
    in the Agreement. Her contractual interpretation analysis ignored the very
    language of s. 12.11(a)(i) of the Agreement, which contemplates that a party
    could assert, as an event of default, the failure to perform a covenant yet the
    defaulting party could cure the breach upon receipt of a notice of event of
    default. Breaches capable of being cured under s. 12.11(a)(i) therefore could
    include ones far less serious than a breach going to the root of the contract.

[14]

Notwithstanding
    that interpretative error, a reading of the motion judges reasons as a whole
    leads us to conclude that the error did not affect her analysis regarding the
    breaches alleged by the Owner. After reviewing each of the alleged breaches,
    the motion judge concluded that the Owner had failed to prove any of the
    breaches above: at para. 26.  As we discuss below, those findings of the
    motion judge were anchored firmly in the record and in the language of the
    Agreement, and they are free from reversible error.

The interim man
a
ger

[15]

The
    next ground of appeal concerns the Managers temporary appointment of Ms. Linda
    Westgate as interim manager of the hotel during the first few months of the
    Agreement. There is no dispute that under s. 1.1(lll) of the Agreement the
    Manager could appoint an interim manager pending the Owners approval of a
    permanent general manager (s. 2.2(b)(ii)). Ms. Westgates tenure as interim hotel
    manager ran from September through until the end of November 2015, when she was
    replaced by the new General Manager, Olivier Rochefort.

[16]

In
    its April 7, 2016 letter, the Owner alleged that Ms. Westgate did not have the
    necessary working visa when she served as the interim manager. The Owner
    characterized this as one of the events of default on which it was relying to
    terminate the Agreement for Cause-Manager.

[17]

The
    Owner submits the motion judge erred by accepting an unsubstantiated hearsay
    allegation in the Managers evidence that Ms. Westgate was not working in
    Canada illegally. We do not give effect to this ground of appeal for two
    reasons.

[18]

First,
    in her affidavit on behalf of the Owner, Ms. Zhang asserted that she had
    learned that Ms. Westgate never secured proper Canadian work documentation, but
    Ms. Zhang failed to disclose the source of that information, contrary to r.
    20.02(1). By contrast, in his reply affidavit for the Manager, Mr. Cohen
    disclosed the source of his information that a representative of the Manager
    would have written to Canadian immigration authorities regarding Ms. Westgates
    temporary employment in Canada.

[19]

Second,
    under the Agreement, an event of default that could justify termination for
    Cause-Manager had to amount to a failure to perform a covenant in any material
    respect that was not cured within 30 days after receipt of notice of default.
    The Owner took the position that it gave formal notice of default on April 7,
    2016, yet Ms. Westgates tenure as interim manager had ended some four months earlier,
    upon the appointment of a permanent general manager. Simply put, when the Owner
    gave notice of default there was no event of default regarding Ms. Westgate
    left to cure. In those circumstances, the Manager was not in breach of a
    covenant in the Agreement in respect of Ms. Westgate that could justify
    termination for Cause-Manager.

The permanent General Manager

[20]

The
    Owner submits that the motion judge erred in failing to find that the Manager
    breached the Agreement by appointing Mr. Rochefort as General Manager in
    November 2015 as he was unqualified for the position. The motion judge rejected
    the Owners argument, holding that it was the owners final decision to hire
    Olivier Rochefort after considering and rejecting other candidates presented by
    Crescent: at para. 15. That finding was fully supported by the record, which clearly
    showed that the Owner had approved the hiring of Mr. Rochefort pursuant to s.
    2.2(b)(ii) of the Agreement.

[21]

As
    well, the Owner contended that the Manager failed to fire Mr. Rochefort in a
    timely manner. The evidence did not support that assertion. Towards the end of
    February 2016, the Owner insisted that the Manager fire Mr. Rochefort. On March
    24, 2016 the Manager advised the Owner that it accepts the termination of [Mr.
    Rochefort] from the general manager position. As the Owner acknowledges in its
    factum, Mr. Rochefort was terminated at that time. Nevertheless, as part of its
    April 7, 2016 notice letter, the Owner required that the Manager immediately
    terminate Mr. Rochefort, failing which the Owner would terminate the Agreement
    for cause.  Whatever the purpose of the Owner making such further demand given
    the Managers earlier acceptance of the decision to terminate Mr. Rochefort, after
    receipt of the Owners particularized notice of April 19, 2016, the Manager
    confirmed again, on April 26, 2016, that it had transitioned Mr. Rochefort from
    the hotel. That was well within the 30-day cure period.

The 2016 Budget

[22]

Finally,
    the Owner contends that the motion judge erred by failing to find that the
    Manager had breached the budget-preparation provisions of Article 7 of the
    Agreement. We see no error in the motion judges finding, at para. 15, that the
    Owner approved the 2016 budget. On her cross-examination, Ms. Zhang, the
    Owners representative, clearly admitted that the 2016 budget ultimately was
    approved.

[23]

In
    any event, the budget was part of the Annual Plan described in Article 7 of the
    Agreement. Section 7.2 provided that in the event the Owner did not approve the
    Annual Plan proposed by the Manager, the Manager would continue to operate the
    hotel in accordance with the standards contained in the Agreement, pending
    settlement of a mutually agreeable Annual Plan. There was no dispute that the
    Manager submitted an Annual Plan, which included a budget. Accordingly, by the
    terms of the Agreement the Owner could not rely on its own refusal to approve
    the Plan as an event of default to terminate for Cause-Manager.

Summary

[24]

For
    these reasons, we see no reversible error in the motion judges conclusion that
    there was no genuine issue requiring a trial in respect of the Managers
    entitlement under the Agreement to the early termination fee. Since the Owner
    does not take issue with the motion judges calculation of the early
    termination fee and the other items making up the judgment amount, that is
    sufficient to dispose of the appeal. There is no need to deal with the further
    ground of appeal concerning the adequacy of the Owners notice of default.

III.      DISPOSITION

[25]

The
    appeal is dismissed.

[26]

The
    respondent Manager is entitled to its costs of the appeal fixed in the amount
    of $20,000, inclusive of disbursements and applicable taxes.

P. Lauwers J.A.

M.L. Benotto J.A.

David Brown J.A.


