Court of Appeal for Ontario

Date: March 27, 2017 Docket: C62151

Judges: Epstein, Benotto and Trotter JJ.A.

Parties

Between

Northridge Property Management Inc. Plaintiff (Respondent)

and

Champion Products Corp. Defendant (Appellant)

Counsel

Harpreet Khukh, for the appellant

Danielle Landry, for the respondent

Hearing and Appeal

Heard: March 14, 2017

On appeal from the judgment of Justice William M. Le May of the Superior Court of Justice, dated April 25, 2016, with reasons reported at 2016 ONSC 2715.

Decision

Epstein J.A.:

Introduction

[1] The respondent, Northridge Property Management Inc., claims damages against the appellant, Champion Products Corp., for breach of an Offer to Lease ("OTL"). Pursuant to the OTL, Champion moved into Northridge's rental property, only to move out three weeks later. Champion argued it owed no damages because either there was no contract, or, if a contract existed, Northridge had fundamentally breached it.

[2] The trial judge allowed Northridge's action. He awarded Northridge $233,146.30 in damages with an interest rate of 12% per annum, compounded monthly. Champion appeals.

[3] For the reasons that follow, I would dismiss the appeal.

Background

[4] Under the OTL, signed by the parties in September 2011, Northridge agreed to renovate parts of the leased premises. The relevant clause reads:

Condition of Premises/Landlord's Work

The Tenant shall accept the Premise in an "as is, where is" condition except that the Landlord shall complete the scope of work as outlined in Schedule 'B'.

[5] Schedule "B", attached to the OTL, set out specific renovations Northridge agreed to undertake.

[6] Paragraph 7 of the OTL provided that Champion "shall execute" a standard form of lease, attached as Schedule "C". In that paragraph, Northridge agreed to negotiate "reasonable non-financial changes" to the parties' agreement. Any dispute would be resolved by binding arbitration.

[7] Amit Sood, the son of Champion's owner, Ashok Sood ("Mr. Sood"), sent two emails to Northridge, dated October 31 and November 9, 2011, listing various outstanding repairs. Trevor Heathers, an executive at Northridge, replied, assuring Amit Sood that the bulk of the repairs would be complete the following week. On November 19, 2011, John Smith, the president of Northridge, emailed Mr. Sood, indicating he (Mr. Sood) was "good to open the store".

[8] Champion moved into the building. Shortly thereafter, Champion took the position that it could not operate out of the space, and left.

[9] Northridge's claim amounted to loss of rent (taking into account the net impact of Northridge's successful mitigation effort), the costs Northridge expended to fix up the premises as set out in Schedule "B", and interest on these amounts.

Trial Judge's Decision

[10] The trial judge found that Mr. Sood and Mr. Heathers had pre-agreement discussions, and then formalized those discussions into the OTL.

[11] The trial judge rejected Mr. Sood's evidence that he did not see the schedules before signing the OTL. He found that all three schedules were attached to the OTL that Mr. Sood had signed and returned to Northridge.

[12] The trial judge then reviewed the controlling case law on the difference between an agreement and an agreement to agree. He found the OTL to be a complete agreement. It contained the essential elements of a lease. It also contained an arbitration provision allowing the parties to resolve any disputes over non-monetary items.

[13] As well, the parties had conducted themselves as if an agreement existed. Northridge spent money upgrading the premises to suit Champion's specific needs, as set out in Schedule "B". Champion took possession.

[14] The trial judge then turned to the issue of whether there was a fundamental breach on the basis that: (1) Champion could not use the property for its business because the property was zoned for industrial use; or (2) the property was unusable when Champion moved in because of a number of uncompleted renovations.

[15] The trial judge rejected both arguments.

[16] With respect to zoning, he found that the property was clearly suitable for one of the businesses that Champion intended to operate out of the premises, and was likely suitable for the other. Furthermore, the parties had discussed zoning. Mr. Heathers knew Champion's old facility had the same zoning as the new one. Additionally, Champion had not raised any concerns over the zoning until the litigation began.

[17] The trial judge similarly found that none of the property deficiencies Champion relied on amounted to a fundamental breach. First, Champion had not behaved as if the agreement was fundamentally breached. Second, the complaints in Amit Sood's November 9, 2011 email had been addressed by Mr. Heathers in his November 11 email. Third, the repairs would have cost about $25,000 – a relatively insignificant amount given the value of the lease. Fourth, many of Champion's complaints related to items for which Northridge had not agreed to be responsible.

[18] The trial judge then considered the interest rate Champion should have to pay on the damages. He held that he had residual discretion under s. 130 of the Courts of Justice Act, R.S.O. 1990, c. C. 43 (the "CJA"), when assessing prejudgment interest. He exercised his discretion and imposed an interest rate of 12% because this was the rate contemplated by the parties – both sophisticated commercial entities – when they entered into the OTL.

Analysis

A. Liability

(1) Did the trial judge err in finding the OTL was a binding agreement?

[19] Champion submits that the trial judge made a number of errors.

[20] First, the trial judge erred in relying on Upper Room Alliance Group Ltd. v. John Volken Foundation, 2008 CarswellOnt 5980 (S.C.). That case, says Champion, is distinguishable because the offer to lease in issue had a clause stating it was binding until a lease was executed, and the court found the parties carefully negotiated the offer to lease. In contrast, the OTL contains no similar clause, and was negotiated at one meeting in August 2011.

[21] Second, the trial judge erred by preferring Mr. Heathers' evidence over Mr. Sood's. Mr. Sood testified that Mr. Smith visited Champion's previous location and promised Mr. Sood a new location that was the same or better, a promise that induced Mr. Sood into agreeing to lease the new space. But the new location needed renovations, which Northridge would not undertake until Mr. Sood signed the OTL. Mr. Sood thought he was signing an agreement to agree so that the renovations could be done. Mr. Smith did not testify. Therefore the trial judge erred in rejecting Mr. Sood's evidence on this point despite it being the best evidence.

[22] Third, the trial judge improperly weighed Mr. Sood's evidence on whether he reviewed and agreed to Schedule "B". There was no evidence to suggest Mr. Sood reviewed Schedule "B". Mr. Heathers did not resend Schedule "B" when Mr. Sood asked for the three schedules. Furthermore, Amit Sood would not have listed the grade level door in his November 9, 2011 email if he knew about Schedule "B", which indicated that renovation would be completed "as is practical". Additionally, the paved parking lot was important to Champion. It did not appear in Schedule "B". If Mr. Sood had reviewed Schedule "B", he would have negotiated the parking lot's inclusion in the list of renovations. Champion's position is that Schedule "B" was not settled.

[23] Finally, rent was not agreed upon, as evidenced by Mr. Smith's November 19 email in which he advised Mr. Sood that the ceiling could be repaired for a $175 per month increase in rent.

[24] I would not give effect to Champion's arguments in support of its position that there was no agreement between the parties.

[25] First, and most significantly, Champion pleaded that the OTL was an agreement the parties entered into. I disagree with Champion's argument that Upper Room is distinguishable. As noted, the OTL contained a term that required Champion to sign the lease attached as Schedule "C", which document contained a mechanism by which non-financial issues could be resolved. Additionally, the parties were sophisticated corporate entities that discussed the terms of their bargain, reduced those terms to writing, and signed the document reflecting those terms.

[26] Second, I do not place any significance on Champion's assertion that Northridge promised Champion a location that was the same or better. The alleged assertion was not a term of the OTL. It was not pleaded as a representation that induced Champion to enter into the OTL. In my view, if it was made at all, the assertion does not alter Northridge's obligations to Champion.

[27] Third, the trial judge's finding that Champion agreed to the OTL, including Schedule "B", was amply supported by the evidence. The fact that Mr. Sood wanted extra work done in no way changed the fact that Champion was bound by the OTL, nor the scope of work Northridge had to do under Schedule "B". Mr. Sood saw Schedule "B" before he signed the OTL. Schedule "B" was referred to in the OTL. Champion is bound by it.

[28] In my view, the November 19 email in which Mr. Smith asked for more money to do work outside the scope of Schedule "B" does not assist Champion. Rather, it suggests the extra work was not part of the original deal. That email also confirms the rent was, in fact, settled. It was only subject to change if Champion wanted more work done.

[29] I would not give effect to this ground of appeal.

(2) If the OTL was a binding agreement, did the trial judge err in finding Northridge did not fundamentally breach the agreement?

[30] Champion submits that it entered into the lease because it was promised a location that was equal to, if not better, than its previous location. It did not get such a location. This breach was fundamental. The trial judge erred by finding that Champion should have simply finished the renovation work itself. This was work Northridge promised to undertake on Champion's behalf.

[31] I do not agree with Champion's position on this issue. The trial judge's finding that Northridge did not breach the OTL is unassailable.

[32] The complaints asserted by Champion at trial, essentially aesthetic, were only raised after it left the premises. Champion's assertion of such work being not only a part of the OTL, but also an important part, lacks credibility. In any event, even if Northridge had to perform the repairs Champion requested, failure to do so did not deprive Champion of essentially the whole benefit of the contract.

[33] I would not give effect to this ground of appeal.

Conclusion regarding Liability

[34] The trial judge considered the evidence. He made credibility findings that were open to him. His clear findings of fact based on the evidence he did accept established that the parties entered into a binding lease agreement and that Champion, not Northridge, breached it.

B. Damages

(3) Did the trial judge err in awarding 12% interest on his damages award, compounding monthly?

[35] Champion argues that the trial judge made several errors; most notably failing to analyze the factors in s. 130(2) of the CJA and failing to provide sufficient reasons why the circumstances warranted departure from the standard interest rate. This case does not warrant departure from the usual CJA rate. Furthermore, says Champion, it took positive actions towards amicable resolution of the outstanding issues. Northridge did not. Champion does not deserve to be punished by this excessive interest rate.

[36] I see no reason to interfere with the trial judge's exercise of his discretion under s. 130(2) of the CJA.

[37] Schedule "C" of the OTL provided for an interest rate on rent arrears of "twelve percent", "24%" and "calculated monthly at two per cent". Northridge gave Champion the benefit of the doubt and requested interest be charged at 12% per year, compounded monthly. The trial judge accepted this submission because the OTL stipulated a higher interest rate than the standard CJA rate, and because the parties were sophisticated commercial entities.

[38] Furthermore, Champion took no "positive actions towards amicable resolution of the renovation issue" because (1) there was no renovation issue, and (2) Champion relied on a contrived renovation issue to vacate the premises. Nor was Northridge guilty of "willful default" for asking to be paid for work outside the scope of Schedule "B".

[39] The discretionary award of pre-judgment interest can only be interfered with if this court finds the trial judge wrongfully exercised his discretion or gave insufficient weight to relevant considerations. The trial judge explained the interest awarded on the basis that it was set out in the OTL as part of Schedule "C". The OTL provided that Champion was "required" to sign a lease in the form contained in Schedule C. The only leeway was that the parties could negotiate non-financial terms – a category into which the rate of interest does not fall.

[40] I would not give effect to this ground of appeal.

Disposition

[41] For these reasons, I would dismiss the appeal, with costs awarded to the respondent, fixed at the amount agreed upon by counsel; namely, $10,000 inclusive of disbursements and applicable taxes.

Released: March 27, 2017

"Gloria Epstein J.A."

"M.L. Benotto J.A."

"G.T. Trotter J.A."