Court File and Parties

Court File No.: CV-13-18990 Date: 2017-05-18 Ontario Superior Court of Justice

Between: Champion Products Corp., Walkerville Commercial Centre Inc., formerly 1206738 Ontario Limited, and 19298446 Ontario Inc., carrying on business as “The Party Warehouse” Plaintiffs – and – Intact Insurance Company, formerly AXA Insurance (Canada), and AXA Insurance (Canada) Defendants

Counsel: Myron W. Shulgan, Q.C., for the Plaintiffs Anthony J. Bedard, for the Defendants

Heard: July 6, 7 and September 12, 2016

Before: King J.

Decision on Summary Judgment Motion

Introduction

[1] For many years prior to February 2011, 1030 Walker Road (the “Walker Road property”) was a busy retail shopping destination in Windsor, Ontario.

[2] Shoppers could purchase household goods and products from Champion Products Corp. and shop the extensive selection of Halloween and other seasonal costumes and accessories at the well-known Party Warehouse.

[3] The 71,000-square-foot structure was owned by Walkerville Commercial Centre Inc. and was occupied by the other named plaintiffs. As all of the plaintiffs are legally related companies and as this decision will affect them all without differentiation, I will collectively refer to them as “Champion” unless the context requires otherwise. The principal owner of Champion was Mr. Ashok Sood.

[4] All activities at the Walker Road property ended precipitously on February 15, 2011 when a significant fire occurred causing massive damage to the building. The north portion of the structure was completely destroyed and was eventually demolished. The south portion of the building was significantly damaged, but capable of being repaired.

[5] Champion has brought this motion for partial summary judgment, seeking payment for amounts claimed under a multi-peril insurance policy (the “policy”) with the defendants, Intact Insurance Company, formerly AXA Insurance (Canada), and AXA Insurance (Canada), collectively referred to as “Intact”.

[6] Specifically, Champion claims the following:

i. a declaration that it is entitled to be indemnified for the replacement costs of its damaged building;

ii. judgment against Intact for breach of contract in the amount of $2,600,000;

iii. an order directing Intact to participate with Champion in an appraisal proceeding to determine the value of the land component of the intended Pickering transaction (discussed further below);

iv. an order granting leave to Champion to re-attend before this court, after the appraisal proceeding is concluded, to move for judgment for any further sums owing to Champion by Intact by way of indemnity for further replacement costs to which Champion is entitled;

v. pre-judgment interest at the rate of five percent per annum from April 13, 2012, 60 days after Champion’s delivery of interim proofs of loss, to the date of judgment; and

vi. the costs of this summary judgment motion on a substantial indemnity basis, including expenses incurred by Champion for appraisal fees, adjusting fees, and the solicitor fees incurred for the Vaughan property, the Scarborough property and the Pickering property.

Is this case appropriate for a Summary Judgment Motion?

[7] Summary judgment should be granted in all cases in which there is no genuine issue requiring a trial. Hryniak v. Mauldin, 2014 SCC 7. That will be the case where the motion material,

i. allows the judge to make the necessary findings of fact;

ii. allows the judge to apply the law to the facts; and

iii. is a proportionate, more expeditious and less expensive means to achieve a just result. Hryniak v. Mauldin, 2014 SCC 7, at para. 4.

[8] I find that the evidence in this matter allows me to make the necessary findings of fact and to apply the law to those facts. For that reason, Rule 20 applies and the matter can proceed by way of summary judgment motion.

[9] The submissions on this summary judgment motion took three full days.

[10] Given the extensive documentation (including transcripts of cross-examinations), the timeline over which relevant events occurred and the complexity of the issues, I will review the applicable facts and relevant documentation on an issue-by-issue basis.

Background

The Insurance Policy – General Overview

[11] Champion insured the Walker Road property with Intact under the provisions of commercial liability policy No. 6107200 (“the policy”). This multi-peril insurance policy was in full force and effect at the time of the loss.

[12] As a result of the fire damage, Champion submitted a claim for business interruption losses. There are no issues before the court regarding that claim on this summary judgment motion.

[13] The policy also provided indemnity for various other types of loss, including fire damage to buildings and contents. Champion submitted a claim on the policy under the “property of every description clause” for damage to the building and contents.

[14] The building coverages of the policy contained a clause which entitled Champion to receive the “replacement cost” of the damaged building if the insured actually secured a “replacement” as defined in the policy and provided this was done with “due diligence and dispatch”. In the event that Champion did not comply with the replacement cost provisions, the policy stipulated that the insured would only be entitled to the actual cash value of the damaged building. That amount would be limited to the depreciated value of the building located at 1030 Walker Road at the time of the fire.

[15] Replacement costs were covered under a “Mega Property extension” that entitled Champion to the replacement costs it would incur for the following:

i. to repair the damaged building;

ii. to replace the damaged building with a new building constructed on site;

iii. to construct a new building on another site anywhere in Canada; or

iv. to purchase a new building on a site anywhere in Canada.

[16] The policy provided that the replacement property had to be of like “kind and quality”.

[17] Champion eventually rebuilt the south portion of the damaged building but elected to “replace” the northern portion with a new building elsewhere in Ontario.

[18] From there, matters between the parties slowly unravelled.

[19] The actions of the parties in the period following Champion’s decision to replace the damaged north portion of the property are what give rise to this partial summary judgment motion.

[20] Champion alleges that Intact breached its indemnity obligations when it refused to pay to Champion replacement costs to which it was entitled so that Champion could fulfill its payment obligations on a building it agreed to purchase in Pickering, Ontario.

Issues on this Summary Judgment Motion

[21] Intact acknowledges Champion’s right to indemnity under the insurance agreement but asserts that Champion forfeited that right when it did not replace the damaged building within the period of time prescribed by agreement of the parties.

[22] The issues can be summarized as follows:

1. Did the parties negotiate an agreement that required Champion to replace the damaged building at 1030 Walker Road in Windsor on specific terms and conditions or else permanently forfeit its right to claim indemnity for a replacement property pursuant to the insurance policy?

2. Did Champion fail to effect the replacement of the damaged building pursuant to any specific terms and conditions?

3. If Champion did not replace the damaged building pursuant to those specific terms and conditions, did Intact waive Champion’s obligation in that respect?

4. If Intact did not waive Champion’s obligation pursuant to those specific terms and conditions, is Champion nevertheless entitled to relief from forfeiture?

5. If Champion is entitled to recoverable depreciation, is interest owing?

The Claim

[23] Initially, the plaintiff’s claim proceeded in an unremarkable manner.

[24] Almost one year following the fire, Champion submitted a formal “Proof Of Loss” to Intact on February 13, 2012. Pursuant to the policy, this permitted the insurance company a period of 60 days to investigate the claim.

[25] At the expiry of that 60 day period, Champion appointed a public adjusting firm, Alex N. Sill Company, to conduct an appraisal under the provisions of the Insurance Act, R.S.O. 1990, c. I.18. Intact did the same by appointing its counsel, Mr. Anthony Bedard of Lerners LLP.

[26] Together, the appraisers selected Mr. Ross Nicholson to act as the “umpire”.

[27] Intact initially acknowledged its obligation to indemnify Champion for the costs it would incur in replacing the damaged building to a standard of like kind and quality, subject to the various applicable provisions of the policy.

[28] Following a meeting of the appraisers and their experts in September 2012, some of the issues were narrowed.

[29] On February 6, 2013, nine days before the limitation period expired, Champion issued this claim seeking contractual and extra-contractual damages.

[30] The claim was filed by Mr. Donald Leschied of the law firm Miller, Canfield, Paddock and Stone (“Miller Canfield”). In addition to Mr. Leschied, Mr. Jeffrey Slopen and Ms. Mary-Anne Keefner of Miller Canfield had significant and direct involvement with Mr. Bedard during the relevant period. All three Champion counsel departed Miller Canfield and became members of the Shibley Righton Law Firm during the timeframe in issue.

The May 6, 2013 Settlement Agreement (Settlement #1)

[31] With respect to both the statutory appraisals process and the litigation action, the parties held a settlement meeting with their respective legal counsel and advisors on March 18, 2013 in an attempt to resolve and narrow the issues.

[32] Champion and Intact negotiated a settlement of the property loss claims. An agreement in principle was reached during that meeting. It was eventually codified in a five-page written document dated May 6, 2013. This agreement will be referred to as the “May 6, 2013 Settlement Agreement” or “Settlement #1”.

[33] This agreement is significant for both its specific terms and conditions and the timeline it set in motion.

[34] The document is titled “Settlement Agreement” to the file before the court (CV-13-18990) and constitutes a “partial settlement of claims on the policies forming the subject of the legal action.” Representatives of the various plaintiff corporations executed the document.

[35] Paragraph 1 of the agreement provided for the payment of $1,290,000 to fully and finally settle all claims except “business interruption loss” and the listed “mega property extension” of the policy.

[36] With respect to the cash value of the building, Settlement #1 quantified the actual cash value (“ACV”) of the Walker Road building loss at $2,850,000. As of that time, $1,860,000 of that amount had already been advanced to Champion by Intact.

[37] With respect to the “replacement cost of the building”, paragraph 2(c) sets the maximum replacement cost to which Champion would be entitled at $7,600,000. That amount was allocated between the completely destroyed north portion of the building and the damaged south portion of the building in the following manner:

Replacement cost of the building is agreed to as follows:

v. $6,900,000 for the cost to replace the destroyed north portion of the building; and

vi. $700,000 for the replacement cost of the repairs to the damage of the south portion of the building.

[38] In order to recover this amount, the insured/Champion had to comply with “the policy provisions dealing with replacement.” Significantly, paragraph 2(f) specified that if the insured/Champion chose to replace the building at a different site, the land acquisition cost was excluded from the replacement benefit to be paid by the insurer. [^4]

[39] There was a process to determine the value of the land acquired, referenced by appraisal pursuant to both the policy and the Insurance Act. Any replacement building had to be of “like kind and quality” and for “similar occupancy” as the insured buildings in order to qualify for recoverable depreciation.

[40] Paragraphs 2(d) through 2(f) detailed the method of calculating the amount Champion could recover by way of recoverable depreciation. In summary, it provided that if Champion elected to purchase a new building on a different site than the Walker Road property, its entitlement would be calculated based on the purchase price of the new property,

i. less the value of the land where the new building is located; and

ii. less any ACV the defendant had already paid to the plaintiff to a maximum payment of $4,750,000.

[41] The figure of $4,750,000 was derived from taking the maximum replacement cost of $7,600,000, less the actual cash value of $2,850,000 for the Walker Road property.

[42] It was also a condition of Settlement #1 that Champion would not be able to unconditionally commit to the purchase of a replacement building until Intact had confirmed it accepted the building to be of like kind and quality to that damaged by the fire and advised Champion of the amount of money to be provided to fund the purchase.

[43] Most significant to the issues on this summary judgment motion is the wording of paragraph 2(j). It provided as follows:

The insured/Plaintiff will have 24 months from the date of settlement to proceed with replacement in accordance with the policy and claim and the recoverable depreciation entitlements under this settlement failing which the Insure/plaintiff will be deemed to have forever waived and forfeited any claim on the policies or under this settlement for recoverable depreciation. Proceeding with replacement shall be deemed to have occurred when the Insured/Plaintiff has entered into a legally binding construction contract for a building qualifying as replacement and has commenced construction;

[44] While the insurance policy required Champion to replace the damaged building with “due diligence and dispatch”, Settlement #1 modified that general and vague requirement by prescribing a specific 24-month period to complete the replacement. As Settlement #1 was reached on May 6, 2013, the 24-month period referenced in paragraph 2(j) would expire on May 6, 2015.

The Various Replacement Properties

[45] Champion entered into agreements of purchase and sale for a replacement property on four occasions following the execution of Settlement #1. These “purchases” were made with respect to three different properties in Ontario. They were located in Vaughan, Scarborough (the same property twice) and finally Pickering.

Agreement of Purchase and Sale #1 - The Vaughan Property

[46] The first property that Champion attempted to purchase was a warehouse at 250 Doney Crescent, in Vaughan, Ontario (the “Vaughan property”). The purchase price was $7,300,000 to a maximum of $10,500,000. [^5]

[47] The offer of purchase and sale was dated March 7, 2014 and was subject to a condition that Champion had to secure required financing. On March 13, 2014, Champion submitted this offer to Intact and requested to be advised if this purchase would qualify as a replacement of like kind and quality and for similar occupancy as defined in the insurance policy.

[48] On March 25, 2014, Intact retained the real estate services firm of Cushman & Wakefield (“Cushman”) to appraise the Vaughan property. Cushman is an American headquartered global real estate services enterprise. It has offices across the globe, with numerous offices in Canada. Property appraisals are among the services provided by Cushman. Mr. Chris Vardon of Cushman prepared the report.

[49] By letter dated April 17, 2014, from Mr. Bedard to Mr. Leschied, Intact notified Champion that the Vaughan property qualified as a replacement in accordance with the May 6, 2013 Settlement Agreement as it was of “like kind and quality and for similar occupancy as the insured buildings.”

[50] As well, the letter indicated that Champion would be entitled to recoverable depreciation calculated in accordance with the formula set out in Settlement #1. That formula was as follows:

[T]otal purchase price minus land value minus cash value payments made to date equals recoverable depreciation (subject to the limits specified in the Settlement Agreement). [Emphasis in original.]

[51] Cushman valued the land at $4,600,000 as per a report summary provided by Mr. Vardon dated April 9, 2014. This document was six pages long and had to be read in conjunction with the Cushman Narrative Appraisal Report, which Mr. Vardon advised was to be forwarded within two weeks.

[52] Champion and the vendor of the Vaughan property had set the land value at $2,400,000 in the agreement of purchase and sale. Champion did not have an appraisal performed with respect to determining the land value.

[53] Based on a closing price of $7,300,000, Intact took the position that there would be no replacement cost owing, in accordance with the following calculation:

Purchase Price on closing $7,300,000 Less Land Value (per Cushman) 4,600,000 Net $2,700,000 Less ACV payments 2,850,000 Net recoverable depreciation is nil

[54] However, based on a closing price of $10,500,000, the report provided that if $3,200,000 was spent on improvements, Champion could be entitled to an amount of recoverable depreciation up to $3,050,000, calculated as follows:

Purchase Price $10,500,000 Less Land Value 4,600,000 Net $ 5,900,000 Less ACV payments 2,850,000 Net recoverable $ 3,050,000

[55] Finally, the letter indicated that while Intact did not accept the land value of $2,400,000 set out in the agreement of purchase and sale submitted by Champion, the issue of the value of the land could be finalized by arbitration pursuant to clause 2(g) of the May 6, 2013 Settlement Agreement.

[56] The $2,200,000 difference in the respective land valuations of the parties was significant. Firstly, as Champion was not entitled to be reimbursed for the land value on the replacement building, the higher the land value, the lower recoverable depreciation payable to Champion. As well, for income tax purposes, Champion would only be legally entitled to claim depreciation on the value of the building, as the value of the land cannot be depreciated.

[57] Ultimately, Champion could not secure the additional financing it required and did not complete this proposed transaction.

[58] The fact that Champion was not going to complete the Vaughan transaction was communicated by Mr. Leschied to Mr. Bedard on April 29, 2014. While there were accusations by Champion that Intact had “killed the deal”, those assertions are not relevant to the issues before the court on this summary judgment motion.

[59] At this point, there were approximately 53 weeks remaining before the 24-month period provided in the May 6, 2013 Settlement Agreement would expire.

[60] There was some further activity regarding the Vaughan property. By letter dated June 6, 2014, Mr. Bedard advised Mr. Leschied of the following:

1. Intact was prepared to reduce the land value to $4,370,000 from $4,600,000.

2. If Champion expended $10,500,000 on the property they could receive $3,280,000 on recoverable depreciation.

3. If only $7,300,000 was expended on closing, a payment of $80,000 would be triggered as a result of the reduced valuation of the land component offered by Intact.

[61] There were further communications between the parties in September of 2014, but ultimately the Vaughan property purchase was not completed by Champion.

Agreement of Purchase and Sale #2 - The Scarborough Property

[62] Following the end of the Vaughan property matter, there does not appear to have been any relevant activity between the parties until early 2015.

[63] On February 17, 2015, Champion entered into an agreement to purchase a building at 88-90 Dynamic Drive, Scarborough, Ontario (the “Scarborough property”). The original closing date was to be April 29, 2015, just one week before the May 6, 2015 deadline date.

[64] On April 17, 2015, Mr. Leschied wrote to counsel for the defendant via e-mail and stated the following:

Without a favourable reply by Monday next, at 4:30 pm April 20th, we either need a six month extension to locate yet another potential replacement site by Champion and/or move for judgment on the Settlement Agreement and the policy to enforce the insured’s rights to replace as per this new agreement.

[65] This was sent less than one month before the May 6, 2015 expiry of the 24-month period delineated in Settlement #1.

[66] There were numerous complications and considerations with respect to whether this property would meet the definition of “like kind and quality for similar occupancy”. However, on April 29, 2015, Intact ultimately confirmed that the proposed building in Scarborough was of like kind and quality to that of the Walker Road property. Intact again obtained an opinion from Cushman as to the value of the land to determine the amount Intact would be required to advance to Champion in fulfillment of its indemnity obligations.

The May 1, 2015 Settlement Agreement (Settlement #2)

[67] Various exchanges between legal counsel resulted in another settlement agreement. The terms of this agreement were reached on April 30, 2015 and set out in a letter dated May 1, 2015 from Mr. Anthony Bedard to Mr. Jeff Slopen (the “May 1, 2015 Settlement Agreement” or “Settlement #2”). [^6] The agreement was further modified on September 14, 2015 as Champion requested and received permission to purchase the Scarborough property in the name of a related company.

[68] This agreement focused exclusively on issues related to the Scarborough property. The essential terms of this second agreement were as follows:

1. The purchase price for the Scarborough property was $7,450,000.

2. A full and final release would be required but did not apply to the business interruption claim.

3. The plaintiff would be required to provide a sworn declaration confirming the accuracy of the payment and proof of the actual amount paid. If the actual purchase price was below $7,450,000, then there would be a reduction of the amount paid for replacement cost by a corresponding amount.

[69] In an email dated May 1, 2015, Mr. Leschied advised Mr. Bedard “We will comply with the terms of the closing of the Scarborough property, as you spelled out.”

[70] Settlement #2 confirmed that the parties “have reached settlement of the outstanding issues regarding the building loss claim on the basis of a further payment of $3,000,000.” While the documents make clear reference to the May 6, 2013 Settlement Agreement, the 24-month deadline expiring on May 6, 2015 is not specifically mentioned.

[71] Although the agreement did not delineate how the parties reached the $3,000,000 amount, the calculation of this amount was as follows:

Purchase Price on closing $7,450,000 Less Land Value (per Cushman) 1,600,000 Net $5,850,000 Less ACV payments 2,850,000 Net recoverable depreciation $3,000,000

Events Occurring After the May 6, 2015 Deadline

[72] The agreement of purchase and sale for the Scarborough property outlined a condition which granted Champion the right to inspect the property before closing. On such inspection, Champion determined that the roof of the Scarborough property was badly in need of repairs. Champion was not prepared to purchase a building with the roof in such poor condition. As such, the original purchase agreement was not completed.

Agreement of Purchase and Sale #3 - The Second Agreement for 88-90 Dynamic Drive, Scarborough

[73] On May 12, 2015, the plaintiff entered into a second agreement of purchase and sale for the Scarborough property on different terms which superseded the initial February 27, 2015 agreement of purchase and sale. The second Scarborough agreement was subject to various conditions, including a requirement that the vendor of the Scarborough property effect required roof repairs before closing.

[74] The May 12, 2015 agreement to purchase the Scarborough property was made six days after the expiration of the 24-month deadline prescribed in the May 6, 2013 Settlement Agreement.

[75] By email dated May 29, 2015, Mr. Leschied’s office notified Mr. Bedard that the closing date for the Scarborough property had been extended to June 29, 2015 in order to complete an environmental assessment.

[76] By letter dated June 25, 2015, Mr. Bedard wrote to Mr. Slopen regarding the Scarborough property. This letter is significant for the following reasons:

1. Intact was proceeding “on the assumption the transaction will close”.

2. A cheque in the amount of $3,000,000 was provided in trust until closing.

3. Mr. Slopen was advised to hold those funds “in trust in accordance with the Settlement Agreement of May 6, 2013.”

4. If the purchase price for the Scarborough property was adjusted on closing below $7,450,000, Champion was to make payment back to Intact in that amount.

5. Once the purchase was completed, Mr. Bedard would put together a release “for this part of the claim in order to complete this aspect of the settlement.’

6. Finally, if the transaction did not close on June 29, 2015, for reasons other than a straightforward extension of the closing date, the $3,000,000 was to be returned to Mr. Bedard as provided for in the May 6, 2013 Settlement Agreement.

[77] These terms were acknowledged in a letter from Mr. Leschied to Mr. Bedard dated June 29, 2015.

[78] While preparing for the closing of the Scarborough agreement of purchase and sale, Champion and the vendor undertook an extensive investigation to determine the scope of the work required to effect necessary roof repairs and the costs of those repairs. Repair estimates were received of approximately $400,000.

[79] As issues continued for Champion with respect to the Scarborough property, issues relating to the terms and conditions of Settlement #2 were assessed. This included the possibility of Champion not completing the Scarborough purchase and acquiring another property.

[80] Significantly, by email dated October 2, 2015, Ms. Keefner emailed the owner of Champion, Mr. Sood, with a copy to Mr. Slopen of her firm, as follows:

If you are looking for replacement properties remember that any offer to purchase must be conditional on your release from this agreement and also on the approval of the insurance company to the replacement property. In accordance with the settlement agreement there was a time limit to acquire the property. I am not sure of the insurer’s reaction to the proposition of the new replacement property and whether they will consider same. I believe that we need to get the insurer’s reaction before we do anything else and in time to close this transaction by some means. Please advise.

Agreement of Purchase and Sale #4 – 865 Brock Road, Pickering, Ontario

[81] On November 9, 2015, Champion entered into an agreement of purchase and sale by its related company, Dynamic Holdings, to purchase a property located at 865 Brock Road, Pickering, Ontario from Kristex Corporation (the “Brock Road property” or the “Pickering property”).

[82] The purchase price for the Brock Road property was $7,400,000. The closing date was March 31, 2016.

[83] The terms and conditions of the original offer were made and executed on the standard Ontario Real Estate Association Form 500.

[84] The agreement of purchase and sale contained terms for an environmental assessment, title search, zoning, inspection, existing tenants, real estate commission and other usual terms and conditions. There was a condition that the purchaser (Champion) had to arrange financing within 30 days.

[85] All of these terms were set out in the original agreement of purchase and sale dated November 9, 2015 and in an amendment to the agreement of purchase and sale dated November 12, 2015.

[86] By letter dated November 14, 2015, Champion notified the vendor of the Scarborough property that as no repairs had been completed, it was cancelling the agreement of purchase and sale of the Dynamic Drive property in Scarborough and demanding the return of the deposit.

[87] As of November 26, 2015, neither Champion nor any of its representatives had notified Intact or any of its representatives that Champion had terminated the Scarborough purchase, or that it had entered into the agreement to purchase 865 Brock Road in Pickering. It was not until after inquiries of Champion’s counsel by Mr. Bedard at discoveries on November 27, 2015 that Intact learned of these two developments.

Analysis

ISSUE #1

Did the parties negotiate an agreement that required Champion to replace the damaged building at 1030 Walker Road in Windsor on specific terms and conditions or else permanently forfeit its right to claim indemnity for a replacement property pursuant to the insurance policy?

Did the May 6, 2013 Settlement Agreement (Settlement #1) amend the terms and conditions of the insurance policy with respect to replacement cost?

[88] For the reasons that follow, I find that the May 6, 2013 Settlement Agreement was an agreement by the parties, negotiated by their respective legal counsel, to fully and finally resolve the replacement property issue arising out of the February 2011 fire.

[89] Many of the specific terms of Settlement #1 are clear and are not in dispute. That is, both parties acknowledged the following:

1. The actual cash value (“ACV”) of 1030 Walker Road was $2,850,000 (para. 2(b)).

2. The replacement cost of the building was $7,600,000 with $6,900,000 attributed to the destroyed north portion and $700,000 to the damaged south portion (para. 2(c)).

3. Should Champion replace the building at a different site, it was responsible for the land acquisition costs of the replacement building (para. 2(f)).

4. If the parties disagreed on the value of the land, that issue was to be determined pursuant to the appraisal process set out in the insurance policy and the Insurance Act. (para. 2(g)).

5. As a pre-condition to receiving recoverable depreciation, the replacement building had to be of “like kind and quality” and for “similar occupancy” as the 1030 Walker Road buildings. Intact was to determine whether any proposed replacement building “falls within the requirements of the policy” (para. 2(h)).

[90] Specifically, the May 6, 2013 Settlement Agreement incorporated and modified the insurance policy in the following manner:

1. The various policies are referenced in the preamble.

2. Paragraph 2(d) required compliance with the policy provisions dealing with replacements.

3. A dispute regarding the land value of a replacement property could be determined as provided in both the policy and the Insurance Act.

4. The replacement property entitlement was to be determined within the requirements of the policy.

[91] Most important to the core issues on this matter is the interpretation of paragraph 2(j), which is worded as follows:

The insured/plaintiff will have 24 months from the date of settlement to proceed with replacement in accordance with the policy and claim and the recoverable depreciation entitlements under this settlement failing which the insured/plaintiff will be deemed to have forever waived and forfeited any claim on the policies or under this settlement for recoverable depreciation. Proceeding with replacement shall be deemed to have occurred when the insured/plaintiff has entered into a legally binding construction contract for a building qualifying as replacement and has commenced construction.

[92] Paragraph 2(j) is far from a model of drafting clarity. There is reference to Champion having “24 months from the date of settlement to proceed with replacement.” For example, there is no definition of what the words “proceed with replacement” mean in view of the various options available to Champion (i.e. build at Walker Road, build elsewhere or replace elsewhere).

[93] I accept the submissions of Intact with respect to applying the principles of contract interpretation set out at para. 37 of the Ontario Court of Appeal’s decision in Plan Group v. Bell Canada, 2009 ONCA 548. In that case, the court stated that a commercial contract is to be interpreted,

(a) as a whole, in a manner that gives meaning to all of its terms and avoids an interpretation that would render one or more of its terms ineffective;

(b) by determining the intention of the parties in accordance with the language they have used in the written document and based upon the “cardinal presumption” that they have intended what they have said;

(c) with regard to objective evidence of the factual matrix underlying the negotiation of the contract, but without reference to the subjective intention of the parties; and (to the extent there is any ambiguity in the contract); and

(d) in a fashion that accords with sound commercial principles and good business sense, and that avoid a commercial absurdity. Plan Group v. Bell Canada, 2009 ONCA 548, at para. 37.

Interpret the contract as a whole, with a view to giving meaning to all its terms

[94] When read as a whole and giving meaning to all terms, I find that the reasonable interpretation is that the parties intended there to be a 24-month period for Champion to complete replacement or forfeit entitlement to the depreciated value of the Walker Road property. To “complete replacement” Champion had to,

i. complete a replacement purchase; or

ii. complete new construction of a replacement building; or,

iii. in the event of new construction only, to have commenced same.

[95] This interpretation is the most consistent interpretation of the entire document.

[96] Counsel for Champion submits paragraph 2(j) only applies in the event Champion elected to construct a new building. He relies on the last sentence, which deems “replacement to have occurred” when the insured has “entered into a legally binding construction contract...and has commenced construction.” I am unable to agree with this interpretation.

[97] When paragraph 2(j) is analyzed on the plain meaning of those words and read in conjunction with the entirety of the May 6, 2013 Settlement Agreement, which incorporated the terms and conditions of the insurance policy, I cannot reasonably conclude the parties agreed that the deadline for Champion to effect completion of the replacement property or forfeit entitlement applied only in respect to new construction.

Determine the intentions of the parties in accordance with the words they have used

[98] While not perfectly delineated in the document, the words used by the parties are consistent with an intent to impose a blanket two-year deadline on Champion to complete replacement.

[99] It is not reasonable to conclude the parties intended to reach an agreement “to settle all claims on the policy and forming the subject of the legal action” but agreed that forfeiture would only apply in the event new construction was not commenced within 24 months. That is an interpretation that the words cannot reasonably bear.

[100] I cannot reasonably interpret the May 6, 2013 Settlement Agreement as demonstrating an understanding of the parties only requiring Champion to proceed with “due diligence and dispatch” pursuant to the policy if replacing the building, but subjecting Champion to an onerous forfeiture of entitlement if it decided to construct a new building, but did not break ground within 24 months.

[101] Such an interpretation would require much more specific language than that used by the parties. If anything, the last sentence actually supports an interpretation that the parties agreed to a blanket two-year period for Champion to complete replacement, but realistically recognized that construction of a new building might not be completed in 24 months so commencement of construction within that period would reasonably satisfy that condition.

Have regard to the factual matrix

[102] There is nothing in the evidence before the court to suggest that the focus of the parties at the time of this agreement was solely, specifically, or even remotely focused on the likelihood that Champion was going to construct a replacement property. In the absence of such focus it does not make sense that the parties intended to only focus on establishing a timeline with penalty for new construction while remaining silent (and in effect continuing to rely only on the language of the insurance policy) with respect to a timeline or deadline to acquire a replacement property.

[103] This interpretation is buttressed by paragraphs 2(k) and 2(l). Paragraph 2(k) provides for advances from Intact to make reasonable “construction draws in order to facilitate the financing of the replacement.” Paragraph 2(l) applies to an outright purchase by Champion of another building. In that event, Intact is to forward the recoverable depreciation to Champion’s counsel “pending closing of the real estate purchase.”

Interpret the contract in a manner that accords with sound commercial principles and good business sense

[104] The May 6, 2013 Settlement Agreement sets out that it is a settlement of the actual cash value of the Walker Road property, the replacement cost of the north and south portions of the building and the formula to calculate the amount of the replacement cost. As well, the agreement indicates it is a settlement of all claims arising out the legal action, except those specifically delineated in paragraph 1(a). Proper legal interpretation, sound commercial principles and good business sense lead to the inevitable conclusion that the parties intended the two-year deadline to apply to all types of replacement, not just new construction.

Is paragraph 2(j) ambiguous?

[105] In the event the language of paragraph 2(j) of the May 6, 2013 Settlement Agreement is ambiguous, the court is entitled to look at extrinsic evidence in order to ascertain the intent of the parties. C.J.A. Local 579 v. Bradco Construction Ltd., 1993 SCC 88. In that regard, I conclude that the actions of the parties clearly demonstrated that their intent by the May 6, 2013 Settlement Agreement was to require Champion to either complete acquisition of (a) a suitable replacement building, or (b) a complete construction of a replacement building, or (c) commence construction of a replacement building by May 6, 2015 or else forfeit entitlement to the depreciated replacement value of the Walker Road property.

[106] The evidence clearly demonstrates the parties acted in a manner consistent with the existence of a firm two-year deadline. Perhaps the most telling in this regard is the email from Mr. Leschied to Mr. Bedard on April 17, 2015. This is approximately three weeks before the May 6, 2015 deadline. Mr. Leschied indicates that unless Champion receives approval for the Scarborough purchase by 4:30 pm on April 20, 2015 “we either need a six month extension to locate yet another potential replacement site by Champion and/or move for Judgment on the Settlement Agreement and the Policy to enforce the Insured’s right to replace as per this new Agreement.”

[107] There would have been absolutely no reason for Mr. Leschied to explain that an extension would be required if there was no deadline with penalty specified in the May 6, 2013 Settlement Agreement or insurance policy, or if any such deadline only had application in the event Champion decided to construct a new building.

[108] Taking all of those fundamental principles of contract interpretation into consideration, I make the following findings with respect to the May 6, 2013 Settlement Agreement.

[109] I find that the terms and conditions of Settlement #1 required Champion to either,

a. complete the purchase of another building of like and quality for similar occupancy within 24 months of May 6, 2013;

b. enter into a legally binding construction contract for a building of like kind and quality for similar occupancy and complete construction; or

c. enter into a legally binding construction contract for a building of like kind and quality for similar occupancy and commence construction within 24 months of May 6, 2013.

[110] As of May 1, 2015, Champion had not satisfied any of these conditions in order to be entitled to receive recoverable depreciation from Intact with respect to the building at 1030 Walker Road.

[111] If nothing further had occurred up to May 6, 2015, Intact would have been in a legal position to notify Champion that it had forfeited any claim to recoverable depreciation for the Walker Road property. However, before that occurred, there were further developments.

Did the May 1, 2015 Settlement Agreement (Settlement #2) amend the terms and conditions of Settlement #1 and the insurance policy?

[112] For the reasons that follow, I find that the parties agreed to amend the terms and condition of Settlement #1 and in doing so extended the May 6, 2015 deadline. They did so by their conduct, and specifically the exchange of three letters. The first letter was dated April 30, 2015 from Mr. Slopen to Mr. Bedard. This was followed the next day (May 1, 2015) by a letter from Mr. Bedard to Mr. Slopen. The issues were further clarified in a letter from Mr. Bedard to Mr. Slopen and Ms. Keefner dated September 14, 2015.

[113] The initial terms and conditions of Settlement #2 were reached just five days before the May 6, 2015 deadline and there was clear recognition that the then current agreement of purchase and sale of the Scarborough property by Champion was not going to close by May 6, 2015 as prescribed in the May 6, 2013 Settlement Agreement.

[114] While a new deadline date was not specified, the parties clearly modified and extended the May 6, 2015 deadline. They did so by requiring Champion to complete the transaction to purchase the Scarborough property and specified that when this occurred, Intact would pay Champion a further $3,000,000 in full settlement of the replacement property portion of the claim.

[115] The conduct of both Mr. Sood and counsel for Champion clearly reflects acceptance of this modified agreement. In his cross-examination, Mr. Sood acknowledged that Champion had to find a way to close the Scarborough transaction. As well, the email Ms. Keefner wrote to Mr. Sood on October 2, 2015 is probative and legally significant. She advised Mr. Sood that if Champion was looking to purchase a different building than the one in Scarborough it would need to,

a. obtain the approval of Intact;

b. recognize the time limit; and

c. get the insurer’s reaction before it did anything else and in time to close this transaction by some means.

[116] This interpretation is further supported for the following reasons:

1. Champion entered into the agreement of purchase and sale of 865 Brock Street in Pickering before terminating the Scarborough transaction. No notice was given to Intact at that time.

2. Champion did not notify Intact or a representative of the Pickering property until questioned at a discovery a few weeks later.

3. Mr. Leschied also confirmed to Mr. Bedard on May 1, 2015 that the parties had settled the depreciation value of replacement property for payment of a further $3,000,000. This resolved the building loss claims and Mr. Leschied confirmed that Champion would “comply with the terms of the closing of the Scarborough property, as you spelled out.”

[117] I note that but for Intact agreeing as they did, Champion would clearly have been in breach of the May 6, 2013 Settlement Agreement. In consideration for this practical forbearance, Champion agreed to further limit its eligibility to recoverable depreciation for the Scarborough property.

[118] I find that Settlement Agreement #2 further modified the terms and conditions of Settlement #1 and the insurance policy.

Terms and condition of Agreement #2

[119] On the evidence in this matter I find that the parties negotiated a binding and enforceable agreement in furtherance of the terms and conditions of the insurance policy. On May 6, 2013 Champion and Intact reached a Settlement Agreement (Settlement #1). This settlement required Champion to complete the purchase, complete construction, or at least commence construction of a suitable replacement property of like kind and quality by May 6, 2015.

[120] On May 1, 2015 the parties then agreed to further amend the terms and conditions of the May 6, 2013 Settlement Agreement beyond the deadline date of May 6, 2015. This was a qualified waiver of the deadline for the following reasons:

1. This second settlement was finalized just six days before the May 6, 2015 deadline and the parties were clearly aware that the proposed Scarborough transaction was not going to be completed by that date.

2. On May 29, 2015, Mr. Leschied advised Mr. Bedard that Champion had obtained an extension of the closing date to June 29, 2015 and was doing an environmental assessment.

3. On June 25, 2015 Intact made a payment of $3,000,000 to Champion’s counsel in trust pertaining to the closure of the Scarborough transaction. As well there were numerous other communications between the parties through the 2015 summer months.

4. A further modification to the agreement was made on September 14, 2015. Counsel for Intact properly relies on this modification as an essential part of the “factual matrix” in support of its argument on the issue of forfeiture.

5. At no point prior to November 27, 2015 did Intact, or its counsel, advise Champion that it was in breach of the May 6, 2013 Settlement Agreement and was deemed to have “forever waived and forfeited any claim on the policies or under this settlement for recoverable depreciation” because it had not effected replacement by May 6, 2015.

[121] While Intact had clearly waived the May 6, 2015 deadline, this waiver was not unconditional; the terms and conditions of Settlement #2 clearly and unequivocally required Champion to effect replacement of the damaged building at 1030 Walker Road by completing the purchase of the property in Scarborough. Only on completion of the Scarborough transaction would Champion be entitled to payment of the $3,000,000 being held in trust. Failing this, Champion would forfeit its right to claim indemnity for the depreciated value of the property at 1030 Walker Road pursuant to the insurance agreement.

[122] I find that the parties negotiated an agreement pursuant to the insurance that required Champion to replace the damaged building at 1030 Walker Road in Windsor by completing the purchase of the property in Scarborough in exchange for a payment of $3,000,000. It was also a term and condition of this agreement that if Champion did not complete this transaction, it would forever forfeit its right to claim indemnity for a replacement property.

ISSUE #2

Did Champion fail to effect replacement in accordance with the insurance policy and subsequent agreements of the parties?

[123] In a word, yes. Champion did not complete the purchase of the property in Scarborough. In fact it terminated that proposed agreement without advising Intact forthwith of its actions in this regard.

[124] Accordingly, I find that as of November 27, 2015 (or within a reasonable time thereafter), Intact was in a legal position to notify Champion that by aborting the Scarborough purchase Champion had forever waived and forfeited any claim on the policies or under the settlement for recoverable depreciation.

[125] However, that did not occur.

ISSUE #3

If Champion did not replace the damaged building pursuant to the specific terms and conditions of the insurance policy as amended by the agreements, did Intact waive Champion’s obligation in that respect?

Conduct of the Parties Following November 27, 2015

[126] As was mentioned above, Intact learned that Champion had cancelled the Scarborough purchase and had entered into an agreement of purchase and sale for the Pickering property at discovery on November 27, 2015. A detailed review of the actions, communications and correspondence between the parties following November 27, 2015 is essential to a determination of the waiver issue.

[127] Ms. Keefner wrote to Mr. Bedard on December 4, 2015. She referenced the verbal notification of November 27, 2015 by Mr. Leschied that the Scarborough purchase had been aborted. The letter then stated the following:

Dynamic Holdings Inc. then promptly sought out a new replacement warehouse of ‘like kind and quality’ on November 9, 2015 and entered into the attached Purchase Agreement. The Purchase Agreement is conditional on financing until December 23, 2015 which financing our client is confident of securing and has a closing date of March 31, 2016, which they intend to meet.

As with the previous agreement, the Insured, it’s affiliate, Dynamic Holdings Inc. and Jeffrey M. Slopen, as legal counsel to the Insured, are fully prepared to execute and deliver a sworn declaration as you sought earlier in a form provided by you.

I enclose both the new Agreement and photos relating to the size, location and general visual description of the warehouse.

[128] Ms. Keefner’s letter enclosed the new agreement of purchase and sale and photos relating to the size, location and description of the warehouse building. The letter also added the following:

Let us know what your insurer’s views are in relation to the inevitable extension of time, property inspections and land value opinion and we will accommodate your clients’ inspections. We continue to hold your insurer’s $3,000,000 in our trust account.

[129] By amendment to the agreement of purchase and sale, dated December 22, 2015, the original November 9, 2015 agreement was amended by Champion (Dynamic) and the vendor Kristex to extend the financing condition deadline to January 15, 2016.

[130] By email dated January 5, 2016, at 3:53 p.m., Ms. Keefner advised Mr. Bedard that the financing condition had been extended to January 15, 2016. The email then asked for confirmation whether,

i. Mr. Bedard had received the agreement of purchase and the sale and accompanying information;

ii. the insurer was satisfied with same with an offer to provide any further information, if requested; and

iii. Champion could remove the financing condition on January 15, 2016 and utilize the insurance proceeds to close the transaction.

[131] Mr. Bedard responded at 4:15 p.m. that day with the following message:

I do not currently have instructions. In fact my instructions are to request return of the money. I am seeking clarification and hope to have a further response before your deadline. In the meantime what is the closing date and is the deal likely to close on that date assuming financing?

[132] Just moments later, at 4:24 p.m., Ms. Keefner advised that the closing date was set for March 31, 2016 and that she had “no reason to believe the transaction will not close on that date.”

[133] The next correspondence was from Ms. Keefner to Mr. Bedard on January 12, 2016. It was sent at 11:51 a.m. in response to a voice message left by Mr. Bedard on January 11, 2016. The email encloses the financing commitment from the lender dated December 22, 2015 and Champion’s acceptance of these conditions dated January 2, 2016.

[134] The financing commitment is from TD Commercial Banking. It references three borrowers. They are Champion and two related companies – Dynamic (the purchaser of the property) and Edna (Windsor) Inc. The document sets out various commitments and obligations with respect to both the purchase of the warehouse on Brock Road and various operating lines of credit.

[135] Under the heading of “Security” on pp. 5 and 6, the financing agreement outlines some 13 forms of “Bank Security” to secure the debt. Of particular significance is item 2(u), which provides as follows: “Assignment of Fire Insurance in the amount of CAD $4,800,000 on 865 Brock Road.”

January 13, 2016 Correspondence

[136] A letter dated January 13, 2016 from Mr. Bedard to Ms. Keefner sets out the position of Intact at that time. The following items were referenced:

i. Mr. Bedard does not have instructions “to consent to the substitution of the Brock Road purchased for the failed Dynamic Drive purchase and allow the $3,000,000 settlement funds to be retained and used for that purpose”;

ii. his client is “looking further at that issue”; and

iii. Ms. Keefner may wish to seek out a further financing condition for 30 days “while we attempt to see if something can be worked out”.

[137] The letter then gave a narrative of events following the May 6, 2013 Settlement Agreement and the failure of Champion to replace the property within the 24-month timeline, stating, “the insured had forever forfeited the right to claim recoverable depreciation.”

[138] However, a lengthy narrative follows describing the fact that a transaction closing after the end of the 24-month period would be permitted under the agreement, provided a binding agreement of purchase and sale was completed before that time. As the Scarborough sale had not been completed prior to the end of that period, “technically the Settlement Agreement required the funds held in trust by your office to be returned.”

[139] Mr. Bedard’s letter then referenced the May 1, 2015 correspondence and the settlement amount of $3,000,000, and stated the following:

Thus, the $3 million was the product of a negotiated settlement and was predicated on the specifics of the Dynamic Drive property which specifics may or may not have the same application to the Brock Road property. This is one of the issues that has to be addressed.

[140] Mr. Bedard then advised of another issue that would have to be addressed because the purchase of the Brock property was well outside of the 24-month replacement window.

[141] In paragraph 4, the letter stated the following:

Although the purchase price of the Brock Road property is similar to the purchase price of the Dynamic Drive property, the Brock building is substantially larger. It is approximately 60% larger than Dynamic Drive and at least 55% larger than Walker Road. That is another issue which has to be addressed when it comes to the determination of like kind and quality and similar occupancy as is required by the Settlement Agreement in order to qualify for replacement.

[142] Mr. Bedard then made inquiries regarding the construction on the 1030 Walker Road property in Windsor and issues related thereto.

[143] The third last paragraph of the letter added the following:

It is unfortunate that the Dynamic Drive property purchase fell through as that has significantly complicated the situation. I have been asked by my client to assist in working through the legal and practical aspects of this new situation. Thirty days should allow us to accomplish that, including any necessary discussions that may have to take place between Mr. Slopen and/or Mr. Leschied and myself.

[144] The last paragraph stated as follows:

I understand the $3 million remains in your trust account. As the issue remains under review by Intact, you may retain the funds in your trust account pending further agreement or direction from me over the next 30 days while we work through this issue.

January 15, 2016 Correspondence

[145] On January 15, 2016, Mr. Bedard sent an email to Ms. Keefner seeking information regarding the chronology of the failure of the Scarborough transaction and the purchase of the Pickering property. He indicated that it would have been preferable to have involved him in the process of the deadline for financing and the extension of the Pickering property.

[146] On that same day, Mr. Slopen had a letter hand-delivered to Mr. Bedard. That letter enclosed a summary opinion of Gateway Valuations Canada, appraising the value of the Pickering land at $1,325,000. Mr. Slopen promised to send the full appraisal. The letter referenced the fact that Champion had requested an appraisal from Intact which “fully supports the payment by the insurer of $3,000,000 being the net replacement cost of the off-set property.”

Extension for Financing

[147] The penultimate and final paragraphs of Ms. Slopen’s January 15, 2016 letter to Mr. Bedard stated the following:

The Purchase Agreement provides that our client is required to waive the condition today. If approval cannot be given, our client will seek an extension of the Condition Date. However, due to delays in obtaining the insurer’s approval, the Seller may not agree to extend the Condition Date, and our client may be forced to search out and acquire a new building.

Accordingly, time is of the essence and the immediate attention of the insurer is required.

[148] On January 18, 2016, the full documentation package regarding the Pickering transaction and negotiating history was forwarded by Mr. Slopen to Mr. Bedard.

[149] On January 21, 2016, Ms. Keefner provided Mr. Bedard with information regarding the eventual breakdown of the Scarborough purchase. She also advised that the financing condition was extended to February 1, 2016.

Cushman and Wakefield Appraisal of the Pickering property

[150] Intact again retained Cushman to inspect and perform an appraisal of the property. Champion was aware this was occurring on January 25, 2016 as a letter of the same date confirming this was sent by Mr. Leschied to Mr. Bedard. The letter referenced the “short delay beyond the two year period in the 2013 settlement.” Mr. Leschied characterized this as a “good faith consequence of the failure of the last aborted purchase extended by your insurer I might add, this current delay if you can call it that...”

[151] Mr. Leschied also indicated in the letter that this situation was clearly covered by “Relief from Forfeiture Law” and cites cases subsequently relied on by Champion at the hearing of this matter. Saskatchewan River Bungalows Ltd. v. Maritime Life Assurance Co., 1994 SCC 100; and Dube v. RBC Life Insurance Co., 2015 ONCA 641.

[152] Under cover letter dated January 28, 2016 Cushman confirmed to Intact representative Mr. Richard Whillans that as of January 25, 2016 the Pickering property was of like kind and quality to qualify as a suitable replacement for the damaged Windsor building.

[153] Again, there was a difference in the amount at which the plaintiff and defendant valued the land component of the Pickering transaction. Based on the plaintiff’s valuation, the defendant would be required to contribute approximately $3,225,000 to fund the Pickering transaction. On the defendant’s appraised land value of $1,950,000, it was only required to contribute approximately $2,600,000.

January 29, 2016 Correspondence

[154] A letter from Mr. Bedard to Ms. Keefner dated January 29, 2016, contains a number of significant passages. The letter mentioned the insurance relationship and that the parties had been addressing issues arising out of the 2011 fire.

[155] Reference was made to the Pickering purchase and that Mr. Bedard was aware that “part of the financing the Purchaser/Champion contemplates is to come from the replacement cost insurance claim with Intact”. The letter then stated the following:

In this regard, Champion has requested that Intact give due consideration to the Brock Road purchase and advise of its position with respect to whether this purchase will qualify for payment of replacement cost. If so, in what amount?

[156] The January 15, 2016 financing deadline is referenced and Mr. Bedard indicated the following:

Intact was not consulted nor did they have input into whether or not this deadline would allow sufficient time for Intact to complete its investigation, give due consideration to the proposal and communicate a decision. It was suggested by me that this financing condition be extended to February 15, 2016 to allow sufficient opportunity for Intact to complete its due diligence and render a decision. Unfortunately, an extension only to February 1, 2016 was granted.

[157] The letter then confirmed that a land appraiser had inspected the site and a report was to be provided and “Intact is currently evaluating the legal and factual issues necessary to render a decision, which is under active consideration.”

[158] Finally, the letter reiterated the fact that an extension on the financing was not granted to February 15, 2016, and advised Ms. Keefner she may “wish to request an extension to February 15, 2016 given the circumstances.”

Subsequent Financing Extensions

[159] In response, Mr. Slopen wrote to counsel for the vendor of the Pickering property on the same day seeking a further financing extension until 6:00 p.m. on February 15, 2016 “in order to obtain the approval of insurer.” The letter was copied to Mr. Bedard.

[160] To obtain an extension to February 15, 2016, Champion provided the vendor with a $20,000 non-refundable deposit upon the following condition:

In the event that the closing of this transaction does not take place for any reason, this non-refundable deposit shall be released to the seller.

[161] On February 9, 2016, Ms. Keefner asked Mr. Bedard for an update on the status of the insurer’s review of the purchase transaction. On February 11, 2016, Mr. Leschied wrote to Mr. Bedard and stated that as it did not appear the Brock Road transaction would close, Champion was putting Intact on notice that it would be claiming damages for losses and damages.

[162] The letter further indicated that Intact should be estopped from relying on the deadline set out in the May 6, 2013 Settlement Agreement as amended in May 2015 by its conduct with respect to the Pickering transaction.

[163] Issues regarding the timing of a decision by Intact arose because the February 15, 2016 extension date regarding financing was the Family Day public holiday in Ontario.

[164] There were email communications between the parties in this regard on Friday, February 12, 2016.

[165] On February 15, 2016, Ms. Keefner advised Mr. Bedard that the Brock property vendor had verbally extended the financing condition date to February 16, 2016.

[166] On February 16, 2016, Ms. Keefner advised Mr. Bedard that the condition on financing was extended to 5:00 p.m. that day. Her email requested Intact’s response before that time.

The February 16, 2016 Correspondence

[167] The letter dated February 16, 2016 is addressed to all three counsel that had been dealing with Mr. Bedard. The letter set out the following points:

1. Mr. Bedard had been advised of Intact’s position with respect to whether or not the Brock Road purchase was in accordance with the Settlement Agreement.

2. Champion was requesting $3,000,000 for the Brock Road property in substitution for the Scarborough property as it claimed the purchase complied with the Settlement Agreement of May 6, 2013 and the Agreement of May 1, 2015.

3. The May 6, 2013 Settlement Agreement was negotiated by experienced counsel, resolved issues on the litigation that were then more than two years old from the date of the fire.

4. It was a condition precedent to receiving recoverable depreciation in the May 6, 2013 Settlement Agreement that Champion had to “effect replacement within 24 months from the date or the insured will be deemed to have forever waived and forfeited any claim under the policy or under this agreement for recoverable depreciation.”

5. If purchasing a replacement property off-site, Champion had to enter into a binding Agreement of Purchase and Sale within the 24 months and close on that purchase (see paragraphs 2(j) and (l)).

6. Champion attempted to “effect replacement” by conditionally purchasing the property on Dynamic Drive in Scarborough.

7. Entitlements were negotiated in the May 1, 2015 correspondence and subsequently.

8. As a result of Champion not closing the purchase of the Scarborough property, Champion had forfeited entitlement to recoverable depreciation under the insurance policy and pursuant to the May 1, 2015 settlement.

9. As a result “Intact therefore respectfully declines to agree to now pay the $3,000,000 being demanded regarding the Brock property.”

[168] The letter then went on to discuss the Brock Road purchase as an entirely different set of circumstances, particularly differences in land value. Mr. Bedard set out that the $3,000,000 referenced in the May 1, 2015 correspondence was $400,000 more than what Intact believed was the proper calculation for the Brock Property. That calculation was set out in footnote 4, which stated the following:

The recoverable depreciation for Brock Road would be calculated at 2.6 million. This would be arrived by starting with the purchase price of $7.4 million and then subtracting the land value of $1.95 million and the ACV already advanced of $2.85 million leaving a net depreciation of $2.5 million.

[169] The valuation was determined by Cushman in a report dated January 25, 2016 (“Cushman and Wakefield Report – 865 Brock Road, Pickering, Ontario”). A copy of that report was included with the letter.

[170] The Cushman report was prepared by Cameron McAlpine, AACI. He is identified as an Associate Vice-President. The report is 42 pages in length. The report also contains a two-page cover letter, a five-page “Executive Summary” and four pages of “Terms of Reference”. It was prepared in accordance with the Canadian Uniform Standards of Professional Appraisal Practice.

[171] The letter ended under the heading “Moving Forward” with a request for the return of the $3,000,000 from the Shibley Righton trust account. There was also a reference to cooperating with respect to an agreed statement of fact for “an application to interpret the settlement agreements.”

Positions of the Parties

Champion

[172] Champion submits that if it was required to replace its damaged building through the completion of a purchase of a new building in a transaction to be completed on or before May 6, 2015, Intact waived the deadline by its conduct.

Intact

[173] Intact denies it waived the deadline. By letter dated February 16, 2016, from Mr. Bedard to Champion’s counsel, Intact took the position that Champion had forfeited its right to recoverable depreciation because it did not replace the damaged building within the 24-month period of time prescribed by the May 6, 2013 Settlement Agreement.

[174] For the reasons that follow I find that Intact waived its right to deem that Champion had forever waived and any claim on the policies or under the settlements for recoverable depreciation.

Legal Principles - Waiver

[175] In Saskatchewan River Bungalows Ltd. v. Maritime Life Assurance Co., 1994 SCC 100, the Supreme Court of Canada stated the following:

Waiver occurs where one party to a contract or to proceedings takes steps which amount to foregoing reliance on some known right or defect in the performance of the other party. Saskatchewan River Bungalows Ltd. v. Maritime Life Assurance Co., 1994 SCC 100, at para. 19.

[176] Waiver will be found only where the party waiving had a full knowledge of rights and an unequivocal and conscious intention to abandon them.

[177] On the evidence I find that by its conduct Intact acted as if it had full knowledge of its rights and had an equivocal and conscious intention to abandon those rights by foregoing reliance on the failure of Champion to complete the Scarborough transaction. I make this finding for numerous reasons.

[178] Mr. Bedard mentioned on January 5, 2016 that his instructions were to request the return of the $3,000,000 being held in trust by Champion’s counsel. Significantly, Mr. Bedard only indicated those were his instructions. He did not,

a. advise Champion that it had forfeited entitlement; or

b. demand an immediate return of the money in trust because of the forfeiture.

[179] In fact, Impact’s conduct over the period of over 80 days from when Intact learned of the aborted Scarborough transaction on November 27, 2015 to February 16, 2016 belies that Intact intended to assert that Champion had legally forfeited any right to claim for recoverable depreciation.

Timeline

[180] A timeline of events and communications during this period is helpful to assess these issues.

December 4, 2015

[181] Legal counsel for Champion forwarded the details of the Pickering purchase to close almost four months later on March 31, 2016. Intact accepted Champion’s full package of information regarding the Pickering transaction. The letter enclosing this documentation references requesting the Insurer’s views with respect to the extension of time, property inspections and land value. From this communication it was clear that Champion was looking to substitute the Pickering property. If Intact was claiming forfeiture there would have been no obligation or reason to even accept this documentation.

January 5, 2016

[182] On January 5, 2016, Mr. Bedard advised he had no instructions to advise Ms. Keefner whether Champion could remove the financing condition deadline approaching on January 15, 2016. The email then indicates, “In the meantime what is the closing date and is the deal likely to close on that date assuming financing?” The closing date and financing arrangements regarding the Pickering property were not relevant to whether Intact should have asserted forfeiture. From this communication alone, it is clear that, at a minimum, Intact is entertaining the possibility of substituting the Pickering property.

[183] The response from Ms. Keefner is that the Pickering transaction is scheduled to close on March 31, 2016.

January 12, 2016

[184] Ms. Keefner forwarded the financing documentation from TD Commercial Banking relating to the Pickering property. This documentation clearly references that Champion will be using an assignment of insurance in the amount of $4,800,000 towards the purchase price. This amount is roughly equal to the total of the $1,850,000 Champion had already been paid by Intact and the $3,000,000 amount set out by the parties in the settlement for recoverable depreciation regarding the Scarborough transaction.

[185] I conclude at this point Intact was fully aware of the details of the Pickering transaction, including the closing date in March and the fact that Champion intended to substitute this property for the Scarborough property.

January 13, 2016

[186] Similar messaging continued. On January 13, 2016, Mr. Bedard wrote to Ms. Keefner and indicated that he did not have instructions to consent to the substitution of the Pickering purchase for the failed Scarborough purchase and his instructions were to request the return of the money. He did not, however, demand the return of the funds.

[187] It is to be noted that a straightforward request that the funds be returned would not, in and of itself, constitute notification to Champion of the default. It could also mean that Intact wanted to maintain control over the funds while the issue of the Pickering transaction was being evaluated.

[188] Furthermore, the correspondence implied the possibility that the Pickering property may have been substituted as Mr. Bedard advised that Intact was looking “further into that issue.” Significantly, he also advised Ms. Keefner to seek out a further financing condition for 30 days “while we attempt to see if something can be worked out.” If the position of Intact was that Champion had forfeited entitlement to the replacement funds there would have been no reason for Intact to do anything other than claim forfeiture and demand the return of the $3,000,000. More specifically, there would have been no reason to look into that issue or direct Ms. Keefner to seek a further financing condition.

[189] The letter then reverted to a discussion of the May 6, 2015 deadline and advised that Champion had “forever forfeited the right to claim recoverable depreciation” and by not purchasing the Scarborough property “technically the insured had forfeited the right to claim recoverable depreciation.” However, rather than advance that position, the letter pivots to the Pickering property by indicating the following:

1. The specifics of the settlement regarding the Scarborough property may or may not have applied to the Pickering property and that issue needed to be addressed.

2. While the purchase price was similar to the Scarborough property, the Pickering property was 60% larger than Scarborough and 55% larger than the destroyed Windsor property, which was “another issue which has to be addressed when it comes to the determination of like kind and quality and similar occupancy as required by the Settlement Agreement in order to qualify for replacement.”

3. Mr. Bedard has been asked by his client to assist in working through the legal and practical aspects of this new situation.

4. Finally, while Intact reviewed the issue, the $3,000,000 could remain in the trust account “pending further agreement or direction from me over the next 30 days while we work through this issue.”

[190] The letter clearly implied that there may still be further agreement. If there is any reference to the contrary it is vaguely referred to by Mr. Bedard as “direction from me.”

January 15, 2016

[191] Mr. Bedard advised Ms. Keefner by email that it would have been preferable to have “involved him in the process for the deadline of financing and the extension of the Pickering property.” These words can only be reasonably interpreted as a step in the process of substituting the Pickering property. They have no relevance to the forfeiture issue.

[192] As well, on the same day Mr. Slopen hand-delivered a letter to Mr. Bedard’s office providing a valuation from Gateway Valuations Canada appraising the Pickering land value at $1,325,000. If that land valuation was accepted the recoverable depreciation would be $3,000,000.

[193] That letter also advised that Champion was required to waive financing conditions that day and that if the vendor did not extend that condition Champion might have to “search out and acquire a new building.” This is further indication that the Pickering transaction was active.

January 21, 2016

[194] Ms. Keefner advised Mr. Bedard that the financing condition was extended to February 1, 2016. This is yet another step solely related to the Pickering transaction.

January 25, 2016

[195] Of major significant to the issue of waiver is the decision by Intact to retain Cushman and Wakefield to inspect and appraise the Pickering property. I find this step totally at odds with the suggestion that Champion had forfeited entitlement. In the event of forfeiture, Intact would have no reason to go to the inconvenience and expense of obtaining a comprehensive appraisal with respect to the Pickering property. When I questioned Mr. Bedard as to why Intact would take any action to have Cushman conduct an appraisal of the Pickering property, his answers were equivocal and did not persuade me that the reasons for the appraisal were integral to the issue of whether forfeiture had occurred.

[196] Furthermore, such actions can only be interpreted as sending a clear message to Champion that the parties were negotiating the terms of the payment for recoverable depreciation with respect to the Pickering property.

January 29, 2016

[197] Mr. Bedard’s letter to Ms. Keefner on this date confirmed that Intact was aware that Champion intended to utilize replacement cost insurance to fund the Pickering purchase. The letter then asked what amount Champion was seeking in this regard. Mr. Bedard politely chastised Mr. Keefner for only extending the financing to February 1, 2016, not February 15, 2016 as he had suggested. She is then urged to seek a further extension to February 15, 2016 as “Intact is currently evaluating the legal and factual issues necessary to render a decision, which is under active consideration.”

[198] From having an appraisal performed and the wording of this letter, I find it clear that Intact was dealing with issues relating to the Pickering property. The use of the word “decision” underscores this interpretation. It is not reasonable to conclude that the “decision” being referred to is related to the forfeiture in these circumstances where Intact is taking steps to evaluate the Pickering property, directing Champion’s counsel to seek financing extensions and determining the amount of recoverable depreciation it would owe pursuant to the May 6, 2013 Settlement Agreement.

February 15, 2016

[199] In order to obtain the financing extension required by Intact, Champion had to provide a non-refundable $20,000 deposit to the purchaser. I conclude this was a further step taken by Champion in reliance on the direction of Intact. While this reliance may not give rise to an estoppel, it demonstrates that Intact was assessing the Pickering transaction.

February 16, 2016

[200] As February 15, 2016 was the Family Day holiday in Ontario, the date to waive financing had to be extended to February 16, 2016. On that day, Mr. Bedard wrote to counsel for Champion and advised that because Champion did not close the Scarborough transaction it had “forfeited entitlement to recoverable depreciation under the insurance policy and pursuant to the May 1, 2015 settlement.”

[201] As indicated earlier, when Intact learned of the failure of Champion to close the Scarborough transaction on November 27, 2015, it had the ability to “deem Champion to have forever waived and forfeited any claim for recoverable depreciation” as set out in paragraph (j) of the May 6, 2013 Settlement Agreement.

[202] However, I find that Intact clearly and unequivocally waived that right. It failed to give clear and unambiguous notice to Champion that it had forfeited entitlement to recoverable depreciation pursuant to the insurance policy and the subsequent agreements on November 27, 2015, or within a reasonable time thereafter. Other than for a short period at Christmas, Champion’s legal counsel was actively taking the necessary steps towards obtaining the approval of Intact to substitute the Pickering property for the Scarborough property.

[203] Astonishingly, it should be noted that it took Intact over 80 days to formally notify Champion of the default and formally demand return of the $3,000,000.

[204] Furthermore, I conclude that Intact took numerous steps between November 27, 2015 and February 16, 2016 that can only be reasonably interpreted as having no relevance or application to the issue of whether Champion had forfeited its right to seek recoverable depreciation pursuant to the insurance policy as further defined by the parties in the May 6, 2013 Settlement Agreement, as amended.

[205] In fact, other than occasionally appearing to be obtusely preserving its right to treat Champion as having forfeited entitlement to recoverable depreciation at an unspecified later date, the actions of Intact actually demonstrate an intention on its part to ascertain whether the Pickering property qualified as a proper substitution of the Scarborough property. I conclude that the following actions taken by Intact had no relevance to the forfeiture issue, but were such that a reasonable person would conclude that Intact intended to assess the Pickering property in substitution for Scarborough and intended to waive the forfeiture of Champion:

1. Intact completed the entire process necessary to ascertain whether the Pickering property was of “like kind and quality” and for a “similar purpose” as defined in the insurance policy. There is no correlation between this exercise and making a decision whether to formally advise Champion of forfeiture.

2. It received and assessed numerous documents from Champion necessary to evaluate the Pickering property. In some instances it requested that Champion provide those documents. These actions further support a finding that Intact was no longer dealing with the issue of forfeiture but was attempting to reach a full and final resolution with respect to the issue in the context of the Pickering transaction.

3. Almost two months to the day after learning of the default, Intact retained Cushman to conduct an appraisal of the Pickering property as it had previously done with the Vaughan and Scarborough properties in order to, inter alia, calculate the value of the land for the purpose of the May 6, 2013 Settlement Agreement, as amended. Not only did the valuation have no relevance to the issue of forfeiture by Champion, this was a clear demonstration to Champion that Intact was working through the issues relating to the substitution of the Pickering property for the Scarborough property.

4. It directed that Champion obtain financing extensions, once at an unrecoverable cost to Champion of $20,000. This had no correlation to anything but the Pickering property.

5. It acknowledged that Champion was seeking to substitute the Pickering property for the Scarborough property and was referencing expected proceeds from the insurance claim in its proposed financing documentation and representations to TD Commercial.

6. It was advised by Cushman that the Pickering building was of like kind and quality and communicated that information to Champion. There was no reason to take either of these steps as part of any decision regarding Champion’s forfeiture by not concluding the Scarborough purchase.

7. It received and assessed the valuation of the Pickering land from the appraiser retained by Champion.

8. It was advised by Cushman of the value of the land component of the Pickering property for the purpose of calculating the recoverable depreciation and communicated that information to Champion. It also compared the size of the Pickering property to that of both Scarborough and Windsor and communicated that information to legal counsel for Champion. At its strongest, the actions of Intact appear to be an effort to make a comparison of the recoverable depreciation with respect to the Pickering property in comparison to Scarborough while purportedly reviewing the situation and deciding whether to advise Champion it had forfeited entitlement to the Settlement amount. Such a comparison has no logical connection to the issue of forfeiture.

9. It repeatedly advised legal counsel for Champion that it was “working through the issue” and that a decision was pending. I conclude that in these circumstances the only issue it was “working through” had to be whether the Pickering property qualified as a replacement and the cost to Intact, as all of the facts relevant to a determination of whether Champion had forfeited entitlement to recoverable depreciation crystallized on November 27, 2015 when Intact learned that the Scarborough transaction had been terminated.

[206] In these circumstances, Intact simply declaring that “a decision was pending” could not and did not have the legal effect of unilaterally giving Intact the right to take almost three months to make a decision as to whether to deem Champion to have forfeited recovery.

[207] There is no evidence before the court that Intact reasonably needed any additional information in order to claim forfeiture and that such essential information was not otherwise available until February 2016.

[208] In and of itself, that delay justifies a finding that Intact waived the right to act upon the breach committed by Champion in November 2017.

[209] That conclusion is further and significantly buttressed by the extensive evidence outlined above of the numerous and significant steps taken by Intact that cannot reasonably be interpreted in any way as required to determine whether to assert forfeiture.

[210] On the evidence, I conclude that a reasonable person would view the entirety of the actions taken by Intact during the 180-day period following November 27, 2015 as demonstrating a clear and unequivocal intention to calculate the recoverable depreciation owing pursuant to the policy utilizing the Pickering property in substitution for the Scarborough property.

[211] On the entirety of the evidence post-November 27, 2015, I find Intact waived the earlier failure of Champion to close the Scarborough transaction.

What is the Appropriate Remedy Flowing from the Waiver by Intact?

[212] Having decided that Intact waived the failure of Champion to close the Scarborough transaction, it follows that Champion is entitled to be indemnified for the replacement cost of the damaged building at 1030 Walker Road in Windsor.

What is the Quantum of Indemnification Owing by Intact?

[213] Cushman appraised the land value of the Pickering property for Intact as worth $1,950,000. Based on that land value, the insurance policy and subsequent agreements between the parties would obligate Intact to pay Champion the sum of $2,600,000 for recoverable depreciation.

[214] On the appraisal Champion commissioned the land was valued by Gateway Valuations Canada at $1,325,000. Based on that lower land value appraisal, Mr. Shulgan submits that the replacement cost obligation of Intact would be $3,400,000.

[215] Further to those calculations Champion seeks judgment in two components. As Intact would be obligated to pay at least $2,600,000 based on its own appraisal, Mr. Shulgan submits Champion should be entitled to judgment in that amount prima facie at this time. He submits the parties should then additionally be ordered to conduct an appraisal pursuant to the Insurance policy to determine the value of the land component and if any greater amount of recoverable depreciation is owing by Intact.

[216] Based on the evidence before the court, I am not persuaded that this is the appropriate approach. While I have found that Intact waived its right to treat Champion as having forfeited recoverable depreciation when it failed to complete the Scarborough transaction, for the reasons that follow I find that the waiver by Intact was of limited scope and effect:

1. The insurance policy required that the insured proceed to replace the damaged property with due diligence and dispatch. There was no specific timeline or penalty provision set out in the policy.

2. The parties modified the general wording of the policy pursuant to the May 6, 2013 Settlement Agreement by imposing a 24-month deadline on Champion to effect replacement, failing which it would be deemed to “have forever waived and forfeited any claim” for recoverable depreciation.

3. As it was apparent on May 1, 2015 that the proposed purchase of the Scarborough property was not going to be completed by May 6, 2015, the parties further modified their agreement. The terms and condition of the amendment were memorialized in correspondence between the parties dated April 30, 2015, May 1, 2015 and September 14, 2015.

4. Specifically, the amount of recoverable depreciation was quantified at $3,000,000. In particular, I note the email correspondence of Mr. Leschied dated May 1, 2015 wherein he confirms the parties had “settled the depreciation value of replacement property for a payment of a further $3,000,000.” To that end Intact actually forwarded that exact amount in trust to legal counsel for Champion.

5. Entitlement to the $3,000,000 was linked to a specific requirement that Champion had to complete the Scarborough purchase. Champion breached that condition when it notified Intact that it had aborted that transaction.

6. The subsequent conduct of Intact constituted a waiver of that breach. However, all that was waived by Intact was the condition that Champion had to close the Scarborough purchase to receive the $3,000,000 settlement amount.

[217] For these reasons I conclude that the waiver did not extinguish the applicability of the insurance policy, or any of the subsequent modifying agreements between the parties regarding the replacement property issue.

[218] On the totality of the evidence on this summary judgment motion, I find that the parties fully and finally settled the replacement property issue for the sum of $3,000,000. To permit Champion to pursue any amount in excess of that amount would require a finding that the waiver by Intact had the legal effect of extinguishing the applicability of the various agreements negotiated by the parties from May 6, 2013. Such a conclusion is not supported on the evidence.

[219] Accordingly, I find that the parties agreed to a full and final settlement with respect to the replacement cost issue pursuant to the insurance policy in the amount of $3,000,000.

[220] In these circumstances the request by Champion for an order directing a further appraisal is dismissed.

ISSUE #4

If Intact did not waive Champion’s obligation pursuant to those specific terms and conditions, is Champion nevertheless entitled to relief from forfeiture?

[221] In the further alternative to the relief claimed on this Summary Judgment Motion, Champion sought an order for relief from forfeiture if the court ruled that Intact had not waived the right to deem that Champion had forfeited recoverable depreciation by failing to close the Scarborough transaction.

[222] As I have found that Intact waived its right to deem that Champion had forfeited recoverable depreciation and have ordered payment of $3,000,000 for recoverable depreciation, this issue is moot and it will not be addressed.

ISSUE #5

Pre-judgment Interest

[223] Champion seeks pre-judgment interest for the period from April 13, 2012 onwards. The significance of April 13, 2012 is that it is 60 days following the delivery of the proof of loss claim by Champion.

[224] On June 29, 2015, Intact paid the sum of $3,000,000 in trust to legal counsel for Champion. This amount was ostensibly paid in settlement of this claim. As events further unfolded that payment has continued to been held in trust.

[225] I am not aware of whether this money has been held in an interest-bearing trust account. If so, I order that Champion is entitled to any and all interest that has accumulated in this regard. In order to determine any other issues relating to interest entitlement, I require the parties to make brief written submissions to the court.

[226] As the successful party on this summary judgment motion, Champion shall provide written submissions on interest entitlement by June 30, 2017. The brief shall not exceed five pages (plus any authorities). Intact shall respond to these issues in the same format by July 31, 2017. If Champion wishes to submit a brief reply, the deadline for a two page submission in that regard should be provided by August 15, 2017.

Costs

[227] At the conclusion of the hearing I requested counsel discuss the issue of costs with a view to ascertaining whether there was agreement in that respect. If the parties have reached an agreement with respect to the quantum of costs to be awarded, I will receive that information forthwith.

[228] In the event the parties are unable to reach consensus with respect to the quantum of costs, written submissions in that regard shall be provided by counsel in the same format and on the same timeline as set out above with respect to submissions regarding interest.

Order

[229] Further to my decision in this matter, I hereby order that Champion is entitled to a declaration that Champion is entitled to a payment from Intact in the amount of $3,000,000. I order this amount, plus any interest that has accumulated while the money has been held in the trust account of Champion’s counsel, to be released 31 days following the issuance of this decision, or such other date as may be agreed by the parties.

“original signed and released by King J.”

George W. King Justice

Released: May 18, 2017

[^4]: The Insurance Policy did not cover the value of land on which a replacement property could be purchased or built. [^5]: Although the property was listed for $7,300,000, the agreement of purchase and sale indicated that $10,500,000 was a maximum price, with the vendor holding a mortgage to be reduced by any payments made by the purchaser to repair the building. This was up to a total amount spent on the acquisition and repairs not to exceed $10,500,000. [^6]: In some of the extensive correspondence on this matter, Mr. Bedard refers to the April 30, 2015 agreement. This is one and the same as the May 1, 2015 letter.