Harlon Canada Inc. v. Lang Investment Corporation, 2010 ONSC 5264
CITATION: Harlon Canada Inc. v. Lang Investment Corporation, 2010 ONSC 5264
COURT FILE NO.: 08-DV-1411
DIVISIONAL COURT
ONTARIO
SUPERIOR COURT OF JUSTICE
(Appeal in action 05-CV-030861)
B E T W E E N:
HARLON CANADA INC.
Thomas V. Ozere, for the Plaintiff (Appellant)
Plaintiff (Appellant)
- and -
LANG INVESTMENT CORPORATION and LEE STEPHENS carrying on business as STEPHENS MECHANICAL
J. Stephen Cavanagh, for the Defendant, Lee Stephens c.o.b. as Stephens Mechanical (Respondent)
Defendants (Respondents)
HEARD: September 22, 2010
Reasons for judgment
Madam Justice J. Mackinnon
Introduction
[1] This is an appeal from the decision of Master MacLeod dated March 31, 2008, granting summary judgment dismissing the action against Lee Stephens carrying on business as Stephens Mechanical ("Stephens"). The action against Lang Investment Corporation has been dismissed on consent and does not form part of this appeal.
[2] The claim involves water damage that occurred as a result of leaks in the roof of the Appellant's business and manufacturing premises. Lang Investment Corporation was the landlord.
[3] In 1997 and 1998, Stephens was hired by Lang to effect roof repairs at the premises. In February 2002, the Appellant's inventory was damaged by water as a result of a leak in the roof of the premises. Stephens was retained again to effect additional roof repairs. In August 2003, the Appellant's inventory was damaged again, as a result of a leak in the roof.
[4] The lease between the Appellant and Lang included a waiver of subrogation clause that states, in part, as follows:
Section 10.01 Tenant's Insurance
TENANT'S INSURANCE the Tenant shall during the terms of this lease and during such other time as the Tenant occupies the leased Premises or any other part thereof, at its sole cost and expense take out and keep in full force and effect the following:
(a) "all risks" insurance, including but not limited to loss, or damage caused by, or resulting from fire, lightning, theft, collapse, water damage, sprinkler leakage, earthquake assumption, wind storm, and other additional perils defined in the Insurance Bureau of Canada (I.B.C.) approved "all risks" policy upon property of every description and kind owned by the Tenant, or for which the Tenant is legally liable and which is located in, at or on the Leased Premises including…
Each of the foregoing policies of insurance shall name the Landlord and its mortgagee(s), if any, as additional named insured as their interests may appear and shall contain: The Insurance Bureau of Canada (I.B.C.) approved standard mortgage clause as may be reasonably required by the Landlord's mortgagee(s); a waiver of any subrogation rights which the Tenant's insurers may have against the Landlord or those for whom the Landlord is in law responsible. [Emphasis added.]
[5] There is no question it is the responsibility of the landlord to keep the roof in good repair, that the landlord hired Stephens to carry out roof repairs and the action was brought by the Plaintiff's insurer pursuant to a right of subrogation. As noted, the Plaintiff conceded that the lease protects the landlord from a subrogated claim and consented to an order dismissing that claim.
[6] The question before the Master was whether there was a genuine issue for trial, whether or not the subrogation waiver also precluded recovery against the Defendant Stephens.
The Decision of the Master
[7] The Master found that there was no genuine issue for trial. In so doing, he held that there was no genuine issue whether Stephens fell within the ambit of one for whom "in law the landlord is responsible." He reached this conclusion based on the terms of the lease, which was in evidence before him, and the applicable case law.
[8] The Master concluded that the landlord could not escape its contractual obligation to repair the roof by hiring a contractor and delegating the work; the landlord was responsible in law for the contractor's work; and accordingly, the subrogation bar extended to the contractor. He noted that there was no evidence before him to suggest that the applicable provisions of the lease were intended to have any other meaning. Indeed, the Appellant filed no evidence on the motion.
[9] The Master also ruled that the fact that s. 6.01 of the lease, in setting out the tenant's obligations, expressly includes its "contractors and contractors' agents" among those for whom the tenant is "…in law responsible…" did not raise a genuine issue for trial with respect to the landlord's responsibility for its contractors.
Standard of Review
[10] In Zeitoun et al v. Economical Insurance Group[^1], the Court of Appeal held that the appropriate standard of review of a master's order, whether interlocutory or final, is that interference is justified only if the master made an error of law, exercised discretion on wrong principles or misapprehended the evidence such that there is a palpable and overriding error: see ¶40-¶41.
[11] Applied to this appeal from the Master's order granting summary judgment, the Master must be correct in his determination that he had jurisdiction to hear the motion. The Master was entitled to interpret the lease in order to apply it to the uncontested facts before him to determine whether there was a genuine issue for trial[^2], provided he applied the proper principles of contractual interpretation. Failure to do so is an error of law attracting review on the standard of correctness. In terms of the factual context of this motion, the Master's determination that no genuine issue for trial exists, must be one that is "open to him to find" "on the record before him."[^3]
Jurisdiction
[12] Rules of Civil Procedure[^4], r. 20.04(4) provides that:
(4) Where the court is satisfied that the only genuine issue is a question of law, the court may determine the question and grant judgment accordingly, but where the motion is made to a master, it shall be adjourned to be heard by a judge.
[13] The Appellant submits that the Master was prohibited from hearing the motion because the interpretation of the words "in law responsible," raises a question of law. However, both Unilease v. Lee-Mar Developments Ltd.[^5] and Astella Pharma Canada Inc. v. Wellspring Pharmaceutical Canada Corp.[^6] hold that interpretation of a contractual provision is a matter of fact, not a matter of law. Nor, in my view, is Unilease Inc., supra, authority for the proposition that a master can only interpret a clause in a contract where the words can only bear one reasonable meaning or have been previously interpreted by a judge's decision. Those were the facts in Unilease, supra, but not the legal principal underlying the decision. I agree with the reasons set out in Neighbourhoods of Cornell Inc. v. 1440105 Ontario Inc.[^7] at ¶14 in relation to the requirement for a master to adjourn the motion to a judge if he/she concludes that there is a genuine issue of law:
14 It is important to understand what that means. Obviously the rule was not intended to preclude a master from deciding any legal issue or applying the law to the facts. A master is empowered to decide that there is no genuine issue of law in the same way as he or she may determine there is no genuine issue of fact. The rule only reserves a "genuine issue" of law to a judge.9 To put this in simplest terms, if a point of law is unclear and it seems possible to determine it on a motion then the issue will be adjourned to a judge. In all other cases in which the law is clear and there is no genuine factual or legal issue, a master may grant summary judgment. For example, in Haick v. Smith, Master Peppiatt concluded that a defence of equitable setoff to a bill of exchange could not raise a genuine legal defence because the Court of Appeal had foreclosed that possibility.10 A similar result was reached in Peel Halton Kitchens v. 1485625 Ontario Inc. in which the master found that the unavailability of equitable setoff to a promissory note was settled law in Ontario.11 In Unilease Inc. v. Lee-Mar Developments Ltd. the master rejected the argument that he could not interpret a contract and determine the effect of certain exculpatory clauses in order to decide if there was a genuine question of law.12 In Taske Technology Inc. v. PrarieFyre Software Inc.13 the master was found to be competent to interpret the terms of a release. All of these decisions were either affirmed on appeal or have been referred to with approval by higher courts.
[14] For these reasons, I find that the Master correctly determined that he had jurisdiction to hear this motion for summary judgment.
Was There a Genuine Issue for Trial?
[15] The Appellant submits that the Master erred in finding that there was no genuine issue whether Stephens was an individual for whom the landlord was "in law responsible." The Appellant submits that this is a determination that requires evidence at trial and that there are circumstances in which a landlord may escape its contractual obligation by hiring a contractor and delegating its contractual obligation to it. Thus, the Appellant submits a trial is necessary to determine whether this case falls into those circumstances or not.
[16] I disagree. The Appellant did not deliver any evidence on the motion. It did not set forth any factual basis for a submission that the landlord was not responsible in law for the work done by the contractor to repair the roof, thereby fulfilling its contractual obligation to the tenant. Instead, the Appellant submitted that Stephens had not filed any evidence to show that Lang was "in law responsible" for his work or addressing the intention of the landlord and tenant to extend the protection of the waiver of subrogation clause to an independent contractor.
[17] Again, I disagree. Stephens presented the lease as evidence. The terms of the lease show the intention of the parties. The Master was correct in describing it this way:
6 The purpose of these lease terms is to allocate risk between the landlord and the tenant and to require each party to insure its portion of the risk. It is an integral part of the bargain that the allocation of risk and therefore cost will not be disturbed by exercise of subrogation rights. In Sally Wasserman Interiors & Gifts Inc. v. Centre City Capital Ltd.1 a similar provision in a standard form lease was held to be effective even when the tenant had only signed an offer to lease. In the case at bar, the lease was executed and an executed copy is before the court. The plaintiff quite properly concedes the lease protects the landlord from a subrogated claim and consents to an order dismissing the claim against the landlord.
15 I find that the claim against Stephens is barred by the lease. There is no evidence to suggest that the intention of the parties concerning the allocation of risk, responsibility and insurance is other than clearly stated in the lease. With the exception of the Broben decision which on this point is clearly distinguishable, the weight of authority leads to this conclusion. I am of the view that on this point there is no genuine issue either of fact or law and accordingly summary judgment should be granted.
[18] In Esses v. Friedberg & Co.[^8], the Court of Appeal elaborated on the obligation of a responding party on a motion for summary judgment:
44 On a motion for summary judgment, the motion judge must bear in mind the placement and substance of the onus on the parties to the motion. The moving party, here Esses, bears the legal or persuasive burden to satisfy the court that there is no genuine issue for trial before summary judgment can be granted. Hi-Tech Group Inc. v. Sears Canada Inc., 2001 24049 (ON CA), [2001] O.J. No. 33 (C.A.) at para. 30. The responding party assumes an evidentiary burden, or something similar, to respond with evidence setting out specific facts showing that there is a genuine issue for trial. But, failure of the responding party to tender evidence does not automatically result in summary judgment. Hi-Tech at para. 30.
45 The nature of the "evidential burden" imposed on a responding party to a summary judgment motion warrants brief mention. The "evidential burden" involves the presentation of evidence, whether affidavit or other material, capable of supporting the position advanced by the responding party. The responding party may not rest his or her defence on unsupported defence allegations or denials, but may nonetheless urge that the moving party's claim as supported by affidavit, is so obviously deficient that it raises a triable issue about the moving party's right to succeed. Hi-Tech at para. 30.
[19] Having regard to the terms of the lease and what they show of the parties' intention, the Appellant cannot merely rest on an allegation that the parties did not intend to extend the protection of the waiver of subrogation clause to an independent contractor.
[20] Next, the Appellant submits that there are circumstances in which a landlord may escape a contractual duty to a tenant by hiring an independent contractor to fulfill the contract and that Stephens was required to, but did not, tender evidence that the landlord was not in this category.
[21] In my view, this submission is based on a misapprehension of the applicable legal authorities. The Appellant relies on McNichol v. Malcolm[^9] where Justice Duff states:
But I cannot agree that, assuming the work in question had been committed to the control of an independent contractor, the landlord could, in the circumstances of this case, for that reason, escape responsibility. The landlord's contract was to supply heat absolutely. This, I think, clearly brought him under an obligation to see that the contract was carried out with reasonable care with a view to the object of the parties in entering into it - that the demised premises should be in a fit state to enable the plaintiff to carry on her business.
[22] The Appellant submits that the words, "to see that the contract was carried out with reasonable care" require an evidentiary inquiry into whether the landlord took reasonable care and precaution with regard to overseeing or inspecting the work, or simply abandoned the work to the contractor. His submission is that the words, "in the circumstances of this case" refer to that inquiry. With respect, in McNichol, supra, the landlord was held liable both for his own negligence in the work he was directly involved in doing and because of his contractual responsibility to the tenant, which he could not escape by delegating. These were "the circumstances" of the case. Moreover, the words "to see that the contract is carried out with reasonable care", in my view, have the same meaning as those set out in Chappell's Ltd. v. Cape Breton (County)[^10] as referred to by Justice Ducharme in Sherman v. 21 Degrees Heating et al[^11] at ¶11:
11 …21 Degrees cannot avoid contractual liability by subcontracting to another party. As Martland J. explained in Chappell's Ltd. v. Cape Breton (County), 1963 105 (SCC), [1963] S.C.R. 340 (S.C.C.), at 343:
By contracting to do the work the [defendant who hired the independent contractor] would have been under an obligation to the [plaintiff] to do the work itself, or to ensure that it was done, carefully. In such a case the [defendant who hired the independent contractor] could not have evaded its contractual duty by delegating the performance of the work to someone else.
[23] The duty "to ensure that it was done, carefully" refers to the principle of liability for negligent performance of its contractual obligation by another party it hires to fulfill that obligation.
[24] These words are analogous to the words relied upon by the Appellant from McNichol, supra, namely "to see that the contract was carried out with reasonable care…" They do not describe a separate defence for the principal, rather state its liability for the negligent performance of the contractor it hired to fulfill a contractual obligation to another.
[25] The outcome in Chappell's Ltd, supra and in Sin v. Mascioli et al[^12] turned on whether a hirer of an independent contractor was liable for its acts of negligence absent a contractual relationship between the plaintiff and the hirer.[^13] These are not the facts here. Accordingly, I disagree with the Appellant that Sin, supra, at ¶14 sets out the law applicable in this case, where there is a contractual obligation from the landlord to the tenant. Rather, in my view, Craven v. Strand Holidays (Can) Ltd[^14] at ¶16 and ¶19 applies:
16 If a person agrees to perform some work or services, he cannot escape contractual liability by delegating the performance to another. It is his contract. …
19 It has been recognized that, apart from certain exceptions which do not apply in the present case (work inherently dangerous or unlawful or constituting a nuisance), a person is not liable for the negligence of an independent contractor unless he had a primary obligation to carry out a non-delegable duty imposed upon him by law or by contract.
[26] This is also consistent with Fraser River Pile & Dredge Ltd. v. Can-Dive Services Ltd.[^15] at ¶32:
32 In terms of extending the principled approach to establishing a new exception to the doctrine of privity of contract relevant to the circumstances of the appeal, regard must be had to the emphasis in London Drugs that a new exception first and foremost must be dependent upon the intention of the contracting parties. Accordingly, extrapolating from the specific requirements as set out in London Drugs, the determination in general terms is made on the basis of two critical and cumulative factors: (a) Did the parties to the contract intend to extend the benefit in question to the third party seeking to rely on the contractual provision? and (b) Are the activities performed by the third party seeking to rely on the contractual provision the very activities contemplated as coming within the scope of the contract in general, or the provision in particular, again as determined by reference to the intentions of the parties?
[27] I agree with the Master where he distinguished the outcome in Broben Investment Ltd. v. Cadillac Contractors & Developments Ltd.[^16] on the basis that the indemnity clause in that lease "protects and was only intended to protect the landlord and not any other person." In Broben, supra, the independent contractor was not protected by the exculpatory clause. The fact that Broben, supra was a trial decision is not helpful to the Appellant; the decision is authority for when a principal is responsible in law for the tort of a hired contractor and correctly identifies the circumstance which exists here, namely "where contractors are employed to do lawful acts which the employer himself would do at his own risk, and therefore are cases where the employer would be liable in breach of contract if he did the work and in so doing caused the damage."[^17]
[28] In this case, the Master interpreted the contractual provisions and, in the absence of any other evidence found that the language used expressed the intention to extend the benefit of the subrogation waiver to the independent contractor hired by the landlord to fulfill its contractual obligation to repair the roof. The Appellant asserts that the phrase "in law responsible" is open to numerous meanings requiring analysis, interpretation and evidence at trial, but it cannot point to evidence or legal principles that support this assertion.
[29] Finally, the Master's reference to the existence of the cross-claim by Stephens against the landlord does not amount to drawing a conclusion or finding facts based only on a statement in the pleading, but rather is used to illustrate a difference between Broben, supra where the tenant was successful directly against the landlord's contractor because the clause in issue only protected the landlord. Here, the landlord secured a clause which gave the protection of the waiver of subrogation clause to himself and to the contractor he is in law responsible for and the landlord is entitled to the protection he had bargained for in the lease. The existence of the cross-claim is pointed to merely to illustrate why a landlord would, on his own behalf, seek that protection.
Conclusion
[30] The appeal is dismissed. If the parties are unable to agree on costs, I may be spoken to.
J. Mackinnon J.
Released: September 30, 2010
CITATION: Harlon Canada Inc. v. Lang Investment Corporation, 2010 ONSC 5264
COURT FILE NO.: 08-DV-1411
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
HARLON CANADA INC.
Plaintiff (Appellant)
- and –
LANG INVESTMENT CORPORATION and LEE STEPHENS carrying on business as STEPHENS MECHANICAL
Defendants (Respondents)
REASONS FOR JUDGMENT
J. Mackinnon J.
Released: September 30, 2010
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