



COURT OF APPEAL FOR ONTARIO

CITATION: Vista Sudbury Hotel Inc. (Rainbow Value Centre) v.
    The Oshawa Group Limited, 2018 ONCA 1075

DATE: 20181221

DOCKET: C65185

Doherty, Miller and Paciocco JJ.A.

BETWEEN

Vista Sudbury Hotel Inc.
    carrying on business as Rainbow Value Centre and Vista Sudbury Complex Inc.

Plaintiffs (Appellants)

and

The Oshawa Group Limited, Oshawa Holdings Limited
    and
Zellers Inc.

Defendants (
Respondent
)

Barry Weintraub and Kristjan Surko, for the appellants

Nicole Henderson and Justin Manoryk, for the respondent

Heard: December 14, 2018

On appeal from the
    judgment of Justice John S. Poupore of the Superior Court of Justice, dated February
    20, 2018, with reasons reported at 2018 ONSC 1164.

REASONS FOR DECISION

[1]

The appellants (Vista) own a shopping mall referred to as the Sudbury Rainbow
    Value Centre. The respondent (Zellers) rented space in the mall and operated
    a Zellers retail store in the mall for many years.

[2]

In February 2004, Zellers advised Vista that it intended to cease
    operations in May 2004. Zellerss lease did not terminate until April 2005.

[3]

Vista sued Zellers claiming that Zellers was obliged under the continuous
    use clauses in the lease to operate the store business until the lease ended
    in April 2005. Zellers proceeded as planned and closed the store in May 2004.
    Zellers paid rent, maintenance, and repair obligations under the lease until
    the termination date in the lease.

[4]

Vista pursued its claim against Zellers alleging that Zellerss premature
    departure from the mall had caused significant damages to Vista beyond the
    amounts owed for rent, repair, and maintenance under the lease. The trial was eventually
    ordered bifurcated. The liability phase proceeded in late 2017. The trial judge
    found that, under the terms of the lease, Zellers was entitled to close its
    store when it did. He also rejected the other arguments advanced by Vista.
    Those arguments are not germane to the outcome of the appeal.

[5]

Vista appealed from the trial judges dismissal of its action. At the
    conclusion of oral argument, the court advised the parties that the appeal
    would be allowed with reasons to follow. These are our reasons.

[6]

The dispute over the interpretation of the lease focused mainly on the
    interaction of the uses clause in s. 8.01, and the hours of operation
    clause in s. 8.01.1.

[7]

Section 8.01 reads in part:

Section 8.01
Use of Premises

The Tenant covenants and agrees that throughout the
    Term, either it or its successors or permitted assigns will continuously,
    actively and diligently carry on the business in the whole of the Leased
    Premises (but subject to this Section 8.01) of the provision of such services
    and the sale of merchandise as is sold in any department store, it being
    understood that while the Tenant is not required by this Section 8.01 to sell
    all lines as are sold in any department store, it will operate a multi line
    store.

[8]

Section 8.01 expressly requires Zellers to continuously, actively and
    diligently carry on [business] in the leased premises for the term of the lease.
    The continuous use obligation spelled out in s. 8.01 is repeated in very
    similar language in s. 8.05, which is headed Continuous Use. Unless modified
    by some other provision in the lease, the language of ss. 8.01 and 8.05 could
    leave no doubt that Zellers was obliged to carry on business on the leased premises
    throughout the term of the lease.

[9]

The trial judge held that the continuous use obligation was qualified by
    the hours of operation clause in s. 8.01.1: see
Vista Sudbury Hotel Inc.
    v. The Oshawa Group Limited
, 2018 ONSC 1164, at para. 11. That section reads
    in part:

Section 8.01.1
Hours During Which Tenant to
    Remain Open

The Tenant shall remain open for the conduct of business
    with the public during at lease [
sic
] those minimum hours of business,
    on those days when

(1) eighty percent (80%) (by area and number) of the
    Rentable Area of the Commercial Complex (excluding all premises leased to the
    Tenant or to any Person described in Sections 11.01(b)(1), 11.01(b)(2) and
    11.01(b)(3) below), and

(2) the Department Store, as it exists on the 21
st
day of February, 1986,

are open in substantially the whole of such respective areas
    for the conduct of business with the public.

[10]

Section
    8.01.1 required Zellers to be open for business during minimum hours of
    business on any day when 80 per cent of the rentable area of the commercial
    part of the mall was open and the Department Store was open. The term Department
    Store in the lease referred to the Eatons store in the mall.

[11]

The
    Eatons store had been the main store in the mall. It had, however, ceased
    operation in November 1999, when Eatons went bankrupt. No tenant had replaced
    Eatons in the mall as of February 2004.

[12]

When
    Zellers told Vista that it was ceasing operations, neither condition in s.
    8.01.1 existed. Eighty per cent of the rentable area was not open, and the long
    gone Eatons store was not open.

[13]

The
    trial judge reasoned that Zellerss duty to continuously operate its store was
    qualified by s. 8.01.1 such that Zellers was only required to be open for
    business when the two conditions in that section were met. If Zellers was not
    required under the terms of the lease to be open for business, it could not
    have an obligation to continuously carry out its business on the rented
    premises. The trial judge said, at para. 23:

The lease contains a clause that expressly confers discretion
    on Zellers to set its hours, subject to certain conditions, and it would
    contradict the lease to impose an obligation of continuous use even after
    Eatons departure (an event that was, as already outlined, foreseeable to the
    parties).

[14]

We
    agree with counsel for the appellants that s. 8.01.1, which addresses hours of
    operation and gives Zellers a discretion as to the hours it chooses to remain
    open if, for example, Eatons is not open, cannot reasonably be read as
    overriding Zellers express continuous use obligation which appears in an
    unqualified form in two places in the lease (ss. 8.01 and 8.05).

[15]

On
    a plain reading, s. 8.01 imposes an obligation on Zellers to carry on business
    in the leased space for the term of the lease. On an equally plain reading, s.
    8.01.1 is directed at setting Zellerss hours of operation of its business and
    not at the requirement that Zellers carry on business. There is a fundamental
    commercial difference between a term directed at the hours of the day during
    which a store must open and a requirement that the store carry on business on a
    continuous basis. A term which speaks to hours of operation assumes that the
    store is carrying on business.

[16]

Zellers
    points to the phrase but subject to s. 8.01 in s. 8.01 to support its
    submission that the continuous use obligation in s. 8.01 is qualified by all of
    the provisions in s. 8.01.1, including the hours of operation provision. The
    reference to s. 8.01 in the phrase subject to s. 8.01 appears to be a
    drafting error. Read literally, the phrase makes s. 8.01 subject to itself. Counsel
    accepted that the reference to s. 8.01 is meant to be a reference to s. 8.01.1.

[17]

Section
    8.01 is subject to s. 8.01.1 in that the latter section speaks to certain particulars
    of Zellerss obligation to carry on business throughout the term of the lease.
    The first part of s. 8.01.1 speaks to hours of daily operation. The remaining
    provisions in s. 8.01.1 speak to circumstances which justify temporary
    interruptions in the carrying out of Zellerss business. We see no
    contradiction between the two provisions. Consequently, reading s. 8.01 as
    subject to s. 8.01.1 does not require reading s. 8.01  much less s. 8.05  out
    of the agreement.

[18]

In
    February 2004, by virtue of the earlier closing of the Eatons department store,
    Zellers had the discretion to set its hours of operation.
[1]
Zellers was however, obliged to carry on business through to the end of the
    lease under the continuous operation provisions in ss. 8.01 and 8.05.

[19]

For
    the reasons set out above, we conclude that the trial judges interpretation of
    s. 8.01 was clearly wrong. That error was material, in that it determined the
    result. The error is therefore palpable and overriding and requires appellate
    intervention.

[20]

Given
    our determination on the contractual interpretation issue, it is unnecessary to
    address the other grounds of appeal raised by the appellant.

[21]

The
    appeal is allowed, the judgment below is set aside, and judgment is granted in
    favour of Vista declaring that Zellers breached its obligation of continuous
    operation when it closed its store in May 2004. The matter is remitted to the
    trial court for a determination of the damages, if any, suffered by Vista as a
    result of that breach.

[22]

Vista
    is entitled to its costs of the appeal on a partial indemnity basis. We fix
    those costs at $20,000, inclusive of disbursements and applicable taxes. We
    leave the costs of the proceedings in the trial court to the judge hearing the
    damages phase of the trial.

Doherty
    J.A.

B.W.
    Miller J.A.

David
    M. Paciocco J.A.





[1]

The scope of that discretion need not be decided in these
    proceedings. It may be important at the damages phase of the trial.


