Court of Appeal for Ontario
Date: July 25, 2019
Docket: C65623
Judges: Feldman, Roberts and Fairburn JJ.A.
Parties
Between
1944949 Ontario Inc., carrying on business as OMG ON THE PARK Applicant (Respondent)
and
2513000 Ontario Ltd. Respondent (Appellant)
Counsel
Shahzad Siddiqui, for the appellant
Paul Ingrassia, for the respondent
Hearing
Heard: March 8, 2019
On appeal from: The order of Justice A. Whitten of the Superior Court of Justice, dated June 20, 2018.
Decision
Roberts J.A.:
A. Overview
[1] The appellant appeals from the order of the application judge, terminating the commercial tenancy of the respondent and directing a trial, by way of action, on the issue of damages.
[2] The respondent tenant operated a bakery and café out of the leased premises. When the premises' HVAC system broke down in December 2017, a dispute arose between the parties as to the appellant landlord's obligations under the lease to repair the system.
[3] The respondent located new premises to rent and brought an application to terminate its lease effective June 30, 2018, and to direct a trial on the issue of damages incurred by the respondent because of the appellant's alleged breach of its obligations under the lease.
[4] The application judge found that the appellant had the obligation to repair and maintain the HVAC system and that it had fundamentally breached the lease by failing to do so. He also found that this fundamental breach invariably led to a breach of the respondent's quiet enjoyment of the premises. The application judge ordered the termination of the lease and a trial, by way of an action, as to the damages suffered by the respondent.
[5] The appellant landlord submits that the application judge's order should be set aside and remitted for re-hearing. Its principal submission is that the application judge denied the appellant a procedurally fair hearing. In particular, the appellant submits that the application judge erred in refusing to adjourn the application and, alternatively, to admit the appellant's supplementary affidavit. In the appellant's view, by refusing to admit its supplementary affidavit, the application judge did not have a complete record that would have allowed him to properly interpret the lease and the parties' respective obligations.
[6] In the further alternative, the appellant argues that the application judge erred by interpreting the lease to find that the appellant had a duty to repair and maintain the leased premises' HVAC system.
[7] The respondent takes the position that the appellant received a procedurally fair hearing and that the application judge ought to be afforded deference over his discretion to control the judicial process of the matter before him and his reasonable interpretation of the lease.
[8] The appellant also seeks leave to appeal the substantial indemnity costs awarded to the respondent.
[9] I would allow the appeal in part. The application judge's exercise of his discretion to refuse the appellant's requested adjournment was reasonable. While the application judge's consideration of the supplementary affidavits filed by the parties was flawed, this did not prejudice the appellant on the substantive issues. The application judge's interpretation of the lease was reasonable and it was open to him, on the record before him, to determine that the appellant had breached its lease obligations. However, I would set aside the order of substantial indemnity costs that resulted from the application judge's error.
[10] The appellant also seeks to adduce fresh evidence on this appeal by tendering the supplementary affidavit rejected by the application judge. In my view, this is not fresh evidence because it was reviewed by the application judge. It is germane to the appeal and should properly be part of the appeal record. I would admit it on that basis.
B. Issues
[11] The two issues raised by the appellant in its factum and developed in argument on appeal can be summarized as follows:
i. Was the hearing of the application procedurally unfair and did it result in prejudice to the appellant?
ii. Did the application judge err in his interpretation of the lease?
C. Analysis
(1) Procedural Unfairness
(a) Standard of Review
[12] This ground of appeal involves the exercise of a judge's discretion to manage and adjudicate proceedings in a manner that is "proportionate to the importance and complexity of the issues, and to the amount involved, in the proceeding": Rules of Civil Procedure, R.R.O. 1990, Reg. 194, r. 1.04(1.1).
[13] It is well-established that absent a palpable and overriding error or an error in principle, the reasonable exercise of a judge's case management discretion is owed deference on appeal. The standard for the reversal of a judge's exercise of discretion was set out by the Supreme Court in Penner v. Niagara (Regional Police Services Board), 2013 SCC 19, [2013] 2 S.C.R. 125, at para. 27:
A discretionary decision of a lower court will be reversible where that court misdirected itself or came to a decision that is so clearly wrong that it amounts to an injustice: Elsom v. Elsom, [1989] 1 S.C.R. 1367, at p. 1375. Reversing a lower court's discretionary decision is also appropriate where the lower court gives no or insufficient weight to relevant considerations: Friends of the Oldman River Society v. Canada (Minister of Transport), [1992] 1 S.C.R. 3, at pp. 76-77.
(b) Pre-hearing Procedural History and Filings Before the Application Judge
[14] To properly frame the first ground of appeal, it is necessary to understand the procedural background to the application.
[15] The issuance of the respondent's application on March 26, 2018 was the culmination of several fractious months of increasingly heated dealings between the parties. In the almost three months leading up to the hearing of the application, the appellant never objected to this matter proceeding by way of application. Rather, the parties agreed on a timetable for the delivery of materials, including affidavits and facta, as well as the conduct of cross-examinations.[1]
[16] On April 10, 2018, the parties consented to a court-ordered timetable for the completion of the various steps in the application. Of relevance to this appeal were the agreed-upon deadlines for the service and filing of the application record, including affidavit materials, and the conduct of cross-examinations, including the delivery of any answers to undertakings arising out of the latter, as well as the delivery of facta. There was no provision allowing for the delivery of any further affidavit materials following the completion of the cross-examinations.
[17] The parties complied with the deadlines for the filing of responding and reply affidavits by April 20, 2018 and April 30, 2018, respectively, and the completion of the cross-examinations. In support of its application, the respondent filed the affidavit of its principal, Douglas Mattina, sworn March 26, 2018. In response, the appellant filed the affidavit of its property manager, Elahe Vahed, sworn April 20, 2018. The respondent filed Mr. Mattina's April 30th reply affidavit. It filed its factum, authorities and compendium on schedule but the appellant did not. Neither delivered answers to undertakings by May 28, 2018. Following the May 21, 2018 cross-examination deadline, the respondent filed Mr. Mattina's June 6, 2018 supplementary affidavit.
[18] As the application had been set down for hearing in Hamilton, it was subject to that jurisdiction's application and motion administrative protocol. That protocol notes that where an application is scheduled for a specified week, as was the case here, the trial coordinator will contact parties or their counsel to advise them when the matter will be argued. The protocol expressly directs that when the matter is called for argument, it is expected to proceed. In accordance with the court-ordered timetable in this case, the application was scheduled to be heard during the week of June 18, 2018. As a result, the parties had to be ready to proceed when called for hearing anytime during the week. The protocol and the court-ordered timetable also required the parties to bring a motion to amend the timetable or to request an adjournment of the application.
[19] On June 6 and 8, 2018 (9 and 11 days respectively past the applicable deadline), the respondent provided answers to its undertakings from Mr. Mattina's cross-examination on his original and reply affidavits. On June 6, 2018 (16 days following the court-imposed deadline for cross-examinations to be completed), the respondent delivered and filed, without leave or the appellant's consent, Mr. Mattina's supplementary affidavit, sworn on June 6, 2018.
[20] In response to respondent counsel's inquiry about delivery of the appellant's factum, appellant's trial counsel (not appeal counsel) asked for an adjournment of the application. On June 19, 2018, respondent's counsel advised the appellant's trial counsel that his client would not agree to the adjournment request.
[21] On June 19, 2018, in the mid-afternoon, the trial co-ordinator advised the parties that the hearing of the application would take place the next day starting at 10:00 a.m.
[22] On June 20, 2018, the date of the hearing of the application, the appellant's trial counsel did not attend court until about 11:45 a.m. He failed to advise the court that he would be late. He asked the court to accept a motion record to adjourn the application. The application judge denied the appellant's adjournment request.
[23] Appellant's counsel then sought to file the supplementary affidavit of Amir Sayar, one of the appellant's principals, sworn June 19, 2018, in response to Mr. Mattina's supplementary affidavit, as well as a factum, a compendium, and a brief of authorities.
[24] In response to the appellant's request to file the supplementary affidavit, factum and brief of authorities, the application judge concluded:
It's all about a heating and air condition[ing] system which was not functioning and was apparently in jeopardy in terms of its continued operation as a concern. I am – this is not a complicated issue. We are proceeding today and I am not receiving your materials because you had plenty of time to do it. End of story. So if you'd like to sit down, you may hear, hear your friend and then you can make whatever response you wish.[2]
(c) Parties' Positions
[25] The appellant contends that it suffered procedural unfairness because the application judge erroneously refused to hear the appellant's motion to adjourn the application or to accept the affidavit materials prepared in response to the respondent's supplementary affidavit. According to the appellant, the application judge ought not to have accepted the respondent's supplementary affidavit that was filed after cross-examinations had occurred and well beyond the deadline imposed by the court-ordered timetable.
[26] The respondent maintains that there was no procedural unfairness to the appellant: there was no error in the application judge's exercise of his discretion not to adjourn the application or admit the appellant's supplementary materials. The respondent takes the position that the appellant suffered no prejudice because the rejected materials would have made no difference to the outcome of the application.
(d) Was the Appellant Denied Procedural Fairness and Did It Suffer Prejudice as a Result?
[27] It is axiomatic that parties to a proceeding are entitled to a fair hearing. A fair hearing of an originating process requires that all parties are given a reasonable opportunity to be heard. A reasonable opportunity must be meaningful. It is not, however, unlimited. As a result, the court has a wide discretion to control the process before it, which includes refusing adjournment requests and restricting the submission of evidence and argument. In exercising this discretion, the court must balance the parties' respective interests in a full and fair hearing. This is consistent with the court's obligation to ensure the just, most expeditious and least expensive determination of every proceeding.
[28] In my view, there was no error in the application judge's denial of the requested adjournment. As the application judge correctly observed, the appellant had adequate time to respond or object to the respondent's late service of materials. Prior to the hearing, the appellant had made no objection to the respondent's late service of the answers to undertakings and the supplementary affidavit. Despite having these materials for several days and knowing that the application could be called for hearing any day during the week of June 18th, the appellant did not request an adjournment until the eve of the hearing nor seek to file any responding materials until the day of the hearing. In these circumstances, the application judge's refusal of the adjournment was reasonable and in keeping with his duty to fairly manage the proceedings in accordance with the parties' reasonable expectations that the application would proceed in accordance with the agreed upon timetable.
[29] The more critical question on this appeal is whether the application judge's failure to admit the appellant's supplementary affidavit to respond to the respondent's late-delivered supplementary affidavit resulted in prejudice to the appellant.
[30] In my view, the application judge's approach was flawed because he failed to turn his mind to whether leave should be granted under r. 39.02(2) of the Rules of Civil Procedure to admit the parties' supplementary affidavits. Instead, he rejected the appellant's supplementary affidavit but admitted the respondent's supplementary affidavit without addressing whether leave should be granted to permit the respondent to file it following cross-examinations in admitted contravention of r. 39.02(2), and in breach of the court-ordered timetable. However, excepting his award of substantial indemnity costs to the respondent, the application judge's flawed approach did not taint his interpretation of the lease or finding of the appellant's breach.
[31] The relevant portions of r. 39.02(2) for the purposes of this appeal are:
A party who has cross-examined on an affidavit delivered by an adverse party shall not subsequently deliver an affidavit for use at the hearing… without leave or consent, and the court shall grant leave, on such terms as are just, where it is satisfied that the party ought to be permitted to respond to any matter raised on the cross-examination with evidence in the form of an affidavit… [Emphasis added.]
[32] Rule 39.02(2) prohibits the use at a hearing of an affidavit delivered after cross-examinations without leave of the court or the consent of the parties: Lacey v. Kakabeka Falls Flying Inc., 2018 ONCA 1007, at para. 13; Lockridge v. Director, Ministry of the Environment, 2013 ONSC 6935, 322 O.A.C. 345 (Div. Ct.), at para. 23; Crown Resources Corp. S.A. v. National Iranian Oil Co., at para. 13.
[33] The court must consider the following criteria in determining whether a party should be granted leave to respond to a matter raised on cross-examination:
Is the evidence relevant?
Does the evidence respond to a matter raised on the cross-examination, not necessarily raised for the first time?
Would granting leave to file the evidence result in non-compensable prejudice that could not be addressed by imposing costs, terms, or an adjournment?
Did the moving party provide a reasonable or adequate explanation for why the evidence was not included at the outset?
See: Lockridge, at para. 24; First Capital Realty Inc. v. Centrecorp Management Services Ltd. (2009), 258 O.A.C. 76 (Div. Ct.), at para. 13.
[34] In First Capital Realty, at para. 14, the Divisional Court articulated the preferred approach to these criteria:
A flexible, contextual approach is to be taken in assessing the criteria relevant to rule 39.02(2), having regard to the overriding principle outlined in Rule 1.04 of the Rules of Civil Procedure that the rules are to be interpreted liberally to ensure a just, timely resolution of the dispute. An overly rigid interpretation can lead to unfairness by punishing a litigant for an oversight of counsel. [Citations omitted.]
[35] The application judge does not appear to have considered these factors or to have adopted a "flexible, contextual approach". He made no reference to the provisions of r. 39.02 or advert to its leave requirement. He should have done so. Rather, he focussed principally on the late submission of the appellant's materials. He should have explained why he accepted the respondent's supplementary affidavit, which was also filed in breach of the court-ordered timetable, while he refused the appellant the opportunity to respond. There was no issue raised of any prejudice if the appellant's proffered materials were admitted.
[36] However, apart from the application judge's award of substantial indemnity costs, I do not agree that the application judge's exclusion of the appellant's supplementary affidavit and the inclusion of the respondent's supplementary affidavit resulted in an unfair hearing with an incomplete record that caused prejudice to the appellant.
[37] The respondent's supplementary affidavit largely served to update the court on what had occurred between the parties since the cross-examinations on the earlier affidavits had been completed. In general, the affidavit addressed rental payment issues, including allegations of threats and harassment by the appellant's property manager, Elahe Vahed, the timing of the respondent's intended departure from the premises, and an HVAC technician's visit to the premises on June 3, 2018 that the appellant had arranged without notifying the respondent.
[38] The appellant's proffered supplementary affidavit, while mostly referencing events that had occurred since the cross-examinations, also referenced matters that long pre-dated the cross-examinations and were or could have been addressed in the appellant's responding affidavit materials. Among other things, Mr. Sayar's affidavit responded to Mr. Mattina's supplementary affidavit in addressing the parties' failure to abide by the court-ordered timetable, the appellant's ongoing attempts to inspect the HVAC system (including the unscheduled technician visit addressed in the respondent's supplementary affidavit), the rental payment issues and the allegations against Ms. Vahed. It also referred to condominium rules relating to repairs, the history of the property, including the appellant's acquisition of the rental property in 2016, and HVAC repairs that had been completed.
[39] In my view, there was nothing new in the respondent's supplementary affidavit that made any difference to the result of the substantive lease issues to be determined on the application. Nor would the appellant's supplementary affidavit have affected the outcome. Moreover, it does not appear that the application judge relied in any material way upon the contents of the respondent's supplementary affidavit to reach his interpretation of the lease or his finding of the appellant's breach.
[40] Though the application judge observed in his reasons that, "to date", the appellant had not properly "reconstituted" the HVAC system, and referred to the appellant's "continued inaction" in that regard, his fundamental breach finding did not depend on the appellant's conduct after May 15, 2018, as outlined in the respondent's supplementary affidavit. As the application judge stated, "the record was quite complete" with the lease, the emails between the respondent and the appellant's property manager (the affiant of the appellant's responding affidavit who was cross-examined), and the analysis of the HVAC technician, completed in January 2018.
[41] I also recognize that the application judge could be seen as referring in part to disagreements between the appellant's property manager and the respondent over rent in concluding that, "relying on the behaviour of the landlord in the last six months", the respondent was entitled to treat the lease at an end. The respondent's supplementary affidavit did address a disagreement over rent that arose following the completion of cross-examinations. However, that dispute mirrored earlier disputes over the same issues that were detailed in the earlier affidavits that had been cross-examined upon. In other words, it was more of the same. Moreover, the application judge specifically stated that the property manager's allegations of non-payment of rent "do not detract from the nature of a fundamental breach of contract". That statement clarifies that the key elements of the record enumerated above, and not the contents of the respondent's supplementary affidavit, were the basis of the finding that there had been a fundamental breach.
[42] As a result, I see no prejudice to the appellant as a result of the application judge's case management decision to refuse admission of its supplementary affidavit. It made no difference to the outcome of the substantive lease issues on the application.
[43] However, the same cannot be said with respect to the application judge's award of substantial indemnity costs. The application judge relied on the unchallenged evidence as set out in the respondent's supplementary affidavit about the appellant's alleged harassment of the respondent through its property manager, Ms. Vahed. He used this evidence to support his finding that the appellant engaged in litigation misconduct that warranted an award of substantial indemnity costs.
[44] This was an unfair outcome that resulted from the application judge's unreasonable exclusion of the appellant's supplementary affidavit in which Mr. Sayar provided a different version of events.
[45] As a result, I would set aside the award of substantial indemnity costs.
(2) Did the Application Judge Err in His Interpretation of the Lease?
[46] The appellant submits that the application judge misconstrued the terms of the lease: it was the respondent's obligation under the lease to find someone to carry out any repairs to the HVAC system; the appellant fulfilled its lease obligations by paying for any repairs.
[47] I would not give effect to these submissions. In my view, the application judge's interpretation of the non-standard form provisions of the lease was reasonable. Absent a palpable or overriding error or an extricable error of law, the application judge's interpretation of the lease is subject to deference on appeal: Deslaurier Custom Cabinets Inc. v. 1728106 Ontario Inc., 2016 ONCA 246, 130 O.R. (3d) 418, at paras. 25-31.
[48] The application judge reviewed the terms of the lease between the parties and found that the appellant had a duty to repair the HVAC system that went beyond simply reimbursing the respondent for repairs. This interpretation reasonably arises from the following express lease provisions:
"Repair and Maintenance of the in-suite HVAC unit shall be paid for by the Landlord throughout the Lease Term";
Schedule B required the landlord to: "Provide HVAC system in good working order".
[49] Further, the appellant landlord's obligation to repair the HVAC system is a reasonable construction flowing from the respondent's right to quiet enjoyment and fitness of the premises as an operational café; the lease expressly notes that the premises "shall be used for a food shop".
[50] I see no error here that would warrant appellate intervention.
D. Disposition
[51] For these reasons, I would allow the appeal in part and set aside the award of substantial indemnity costs. In its place, I would award the respondent its partial indemnity costs of the application in the amount of $11,000, inclusive of disbursements and taxes. I would otherwise dismiss the appeal.
[52] The respondent was largely successful on this appeal and is therefore entitled to partial indemnity costs in the amount of $7,500, inclusive of disbursements and applicable taxes.
Released: July 25, 2019
"K.F."
"L.B. Roberts J.A."
"I agree. K. Feldman J.A."
"I agree. Fairburn J.A."
Footnotes
[1] The parties proceeded from the outset by way of application to determine both the interpretation of the lease as well as whether the landlord had breached the lease. The breach issue was a disputed factual issue and was the subject of much of the evidence on the application. Because no party raised as a ground of appeal the propriety of proceeding by application rather than by action, these reasons do not address that issue.
[2] In the course of the hearing, the appellant also sought to bring a motion to convert the application into an action, which was denied by the application judge. That decision is not the subject of this appeal.
