CITATION: Hydra Tan Ltd. v. 2049390 Ontario Inc., 2016 ONSC 1532
DIVISIONAL COURT FILE NO.: 155/15 DATE: 20160302
ONTARIO SUPERIOR COURT OF JUSTICE DIVISIONAL COURT
BETWEEN:
HYDRA TAN LTD.
Plaintiff
(Respondent)
– and –
2049390 ONTARIO INC., JAMES KAN CENTURY 21 LEADING EDGE REALTY INC. and CENTURY 21 CANADA LIMITED PARTNERSHIP
Defendants
(Appellants)
Steven K. Stauffer, for the Plaintiff (Respondent)
R. Lee Akazaki, for the Defendants (Appellants)
HEARD at Toronto: March 2, 2016
C. HORKINS J. (ORALLY)
[1] This is an appeal from the final order of Deputy Judge Robert C. Kay. The Small Claims Court action arises out of a dispute between a landlord and a tenant. The appellant landlord is 2049390 Ontario Limited (“landlord”). Mr. James Kan testified for the landlord. The respondent tenant is Hydra Tan Limited (“tenant”). Leigh DeFreitas testified for the tenant.
[2] The Deputy Judge granted judgment in favour of the tenant in the amount of $18,984 plus disbursements of $175 and $500 for costs. It is this part of the final order that the landlord appeals.
[3] The action against James Kan, an officer of the landlord numbered company was dismissed and the tenant was ordered to pay Mr. Kan $500 in costs. This part of the final order is not being appealed.
[4] The standard of review for a judge’s final order on questions of law is correctness and on questions of fact palpable and overriding error. The landlord in this case argues solely that the judge erred in law.
[5] The facts relevant to this appeal are as follows.
[6] On October 27, 2011, the tenant agreed to lease two floors of a commercial building at 369 Queen Street West. The tenant’s real estate broker prepared the lease and it was accepted by the landlord. The parties signed the lease. The lease was for a term of 62 months. The tenant operated a Tanning Studio in part of the leased premises. The remaining part was sublet to the operator of a tattoo parlour.
[7] On October 30, 2012 a fire occurred at the leased premises. This resulted in extensive damage. It is agreed that the building was damaged beyond repair and had to be demolished. The fire left various debris on the property including the remains of the tenant’s property. The landlord had to clear the debris from the damaged site and incurred a debris expense totalling $106,571.09. The tenant had fire insurance. The landlord was “under insured”. The landlord estimated that 10-15% of the total debris removal expense was incurred to remove the tenant’s debris property.
[8] Under the lease, the tenant was required to pay the landlord what he called a deposit. After the fire destroyed the rented premises and the entire building, the tenant asked the landlord to return the deposit. The landlord refused and the tenant issued its claim in the Small Claims Court.
[9] In his claim the tenant described the basis of the claim. He referred to the 62 month lease, the payment of his deposit and the fire that destroyed the building about the year after the lease started. He pleads that he requested the landlord to return the deposit “as the lease is no longer in effect because of the destruction of the building.”
[10] In its defence, the landlord framed its position narrowly. It denied liability to return the money to the tenant because the tenant “breached its obligations under the lease” causing damages and losses to “the landlord which the landlord claims both legal and equitable set off.” In addition the landlord claimed “that as a result of the fire, substantial costs were incurred in removing the personal property and chattels of the tenant and the tenant failed to compensate the landlord.”
[11] At trial, the landlord presented no evidence that the tenant had breached its obligations under the lease and never presented evidence that the tenant had caused the fire. The landlord did not contest the tenant’s position that the lease was no longer in effect after the fire. Instead the very narrow focus of the trial was two-fold: (1) whether Mr. Kan, as an officer and director of the landlord company could be held liable and (2) entitlement to return of the deposit and the landlord’s set off claim.
[12] On this appeal, the landlord now seeks to raise arguments that were not raised in its defence or during the trial. In summary, these new issues that are set out in Supplementary Notice of Appeal are premised on the landlord’s argument that there was a valid lease in effect despite the fire and the total destruction of the leased premises and that the tenancy did not terminate after the fire. The landlord argues that the judge erred in law in ordering the return of the deposit to the tenant.
The landlord did not seek relief to raise new issues on this appeal. Counsel for the tenant objected to the new issues being raised. I heard submissions. I ruled that the new issues would not be allowed. Appeal courts are reluctant to allow a party to raise a new issue on appeal for a number of reasons: prejudice to the respondent because of the lack of an opportunity to respond and adduce evidence at trial; lack of a sufficient evidentiary record to allow the appeal court to make necessary findings of fact in order to rule on the new issue; and an interest in the finality of legal proceedings.
[13] The Ontario Court of Appeal stated in Perez v. Governing Council of the Salvation Army of Canada (1998), 42 O.R. (3d) 229, at para. 233:
In the normal course, appeals are not the proper forum in which to raise brand new issues which significantly expand or alter the landscape of the litigation. On occasion, such issues can be raised on appeal where the party seeking to raise the new issue demonstrates that the interests of justice require an exception to the normal and accepted course of litigation.
[14] In this case, the tenant clearly stated in its claim, its position that the lease is no longer in effect given the total destruction of the premises caused by the fire.
[15] In its defence, the landlord baldly denied the claim and particularized in para. 3 why: specifically that the tenant had breached its obligation under the lease and caused damage to the landlord that resulted in the expense of the debris removal.
[16] Specifics of the breach were not provided in the defence except in the sense that the landlord tied it to the fire and the debris removal costs.
[17] The landlord did not deny the tenant’s specific claim that the lease was no longer in effect and it was not the focus at trial. Instead, the focus in the defence and at trial was whether the landlord could claim a set off against the deposit, for having paid to remove the tenant’s debris after the fire.
[18] The landlord did not argue that the lease continued despite the fire and as a result the tenant would have no right to return of the deposit. The landlord presented no evidence that the tenant had breached the lease and/or caused the fire.
[19] The tenant, understandably, said that it would be prejudiced if these new arguments were permitted on this appeal. If there had been an issue regarding the continuation of the lease, the tenant said it would have led evidence at trial to the contrary to show that the landlord had, by its conduct, terminated the lease.
[20] In my view, the new issues that the landlord seeks to raise significantly change and alter the nature of the dispute that was before the Deputy Small Claims Court Judge.
[21] It would be prejudicial to the tenant to now allow such arguments to be made on this appeal since it would be prevented from introducing the evidence and conducting the further cross-examination that it would have pursued at trial had it known that such issue would be raised. This Court would not have the evidentiary foundation upon which to consider such new issues. This is not a situation where the interest of justice require an exception to the normal and accepted rule that new issues ought not to be raised on appeal.
[22] In summary, for the above reasons, I refused the landlord’s attempt to raise new issues. Having done so, it is difficult to articulate a ground of appeal that does not raise a new issue. The only ground possibly identified by the landlord can be described as follows.
[23] The landlord in Court argues that the trial judge erred in his interpretation of clause “HH”. It says that this clause limits when the tenant can recover its deposit. The landlord says that the judge erred in allowing the return of the deposit in circumstances outside the conditions articulated in clause “HH”.
[24] Whether this is a new argument or not, it is my conclusion that the landlord has failed to prove that the judge erred as alleged.
[25] The Deputy Judge found that as a matter of fact the tenant had paid a deposit of $18,894.00. The tenant was able to find documentary proof that he paid half of this amount. He testified that he had lost a large number of records in the fire.
[26] The landlord denied that it had received a draft money order but the Deputy Judge preferred the evidence of the tenant. It noted that under the lease the tenant was required to pay the money as security, that the tenant had offered a bank draft to show that at least some of this money was paid and so the Deputy Judge found as a fact that $18,984.00 indeed had been paid and he stated as follows:
I cannot imagine that a corporate landlord would allow a tenant to remain in possession without the tenant having paid the security deposit.
[27] The Deputy Judge also found as a fact that the fire was not caused by the tenant. Further, as stated there was no evidence led by the landlord that the tenant was in breach of the lease. There was no evidence that the landlord requested ongoing lease payments after the fire and destruction of premises. Such conduct is consistent with the tenant’s pleading that the lease was no longer in effect after the fire.
[28] The Deputy Judge clearly sets out his reasons for rejecting the landlord’s set off claim and ordering the return of the deposit to the tenant. He correctly rejected the landlord’s argument that the tenant’s right to return of the deposit was limited to clause “HH”. The relevant part of “HH” that deals with the return of the deposit states:
Upon execution of this Agreement to Lease, the Tenant shall pay a deposit cheque in total amount of $18,984.00, this deposit shall be deemed straightly as security deposit and the last 2 months WILL NOT be credited towards the last two months’ rent. Refund to Tenant will ONLY be refund to Tenant in 15 banking days if there are no damage to Landlord’s property after tenant move out, paid up all its utility bills, and that the Tenant is not in default of the lease term.
[29] The Deputy Judge correctly concluded that clause “HH” “does not address what will happen to the security deposit if there is a discontinuation of the tenancy or damage which is caused by third parties and not the tenant itself.”
[30] The Deputy Trial Judge applied common sense to the interpretation of clause “HH”. He states at page 46 of the transcript:
Again I refer to the lease. It’s vague as to when a tenant is entitled to the return of the security deposit. It talks about if there’s damage. And the only logical way to read clause HH to damage by the tenant is the tenant named in the lease. It’s ridiculous to believe that damages referred to anyone except that caused by the tenant named in the lease before me in exhibit three, and I believe also exhibit one.
[31] After acknowledging that the lease was drafted by the tenant’s real estate agent and accepted by the landlord, the Deputy Trial Judge went on to state at page 51 of the transcript:
So while I accept the fact that indeed this lease may have been prepared by the agent for the plaintiff, it was accepted by the landlord and there is no evidence or clause or statement within that lease which indicates that the tenant should be responsible for debris removal from a fire. For the corporate landlord to establish that responsibility, it would have to be delineated within the lease. It is silent. Therefore, the tenant bears no responsibility. It’s silent technically as to the landlord’s responsibility as well, but if you were to require or demand or expect equitable set off from the cost of debris removal you would have to establish responsibility of the corporate tenant. It is simply not there. He didn’t cause this damage or it being the tenant, the corporate tenant didn’t cause this damage. There is no responsibility for that damage which can be laid at the feet of the corporate tenant.
[32] In summary, the landlord has failed to establish that the Deputy Trial Judge made any error in law.
[33] Accordingly, the appeal is dismissed.
COSTS
[34] I have endorsed the back of the Appeal Book, “For reasons delivered orally today the appeal is dismissed with costs. Appellant shall pay the respondent costs fixed at $5,000, all inclusive.”
___________________________ C. HORKINS J.
Date of Reasons for Judgment: March 2, 2016
Date of Release: March 4, 2016
CITATION: Hydra Tan Ltd. v. 2049390 Ontario Inc., 2016 ONSC 1532
DIVISIONAL COURT FILE NO.: 155/15 DATE: 20160302
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
C. HORKINS J.
BETWEEN:
HYDRA TAN LTD.
Plaintiff
(Respondent)
– and –
2049390 ONTARIO INC., JAMES KAN CENTURY 21 LEADING EDGE REALTY INC. and CENTURY 21 CANADA LIMITED PARTNERSHIP
Defendants
(Appellants)
ORAL REASONS FOR JUDGMENT
C. HORKINS J.
Date of Reasons for Judgment: March 2, 2016
Date of Release: March 4, 2016