DATE: 2001530

DOCKET: C33233

COURT OF APPEAL FOR ONTARIO

RE: RACHEL HUMBER (Plaintiff/Respondent) v. ASSOCIATED RESPIRATORY SERVICES INC., carrying on business under the firm name and style of ARS VITALAIRE, VITALAIRE and AIR LIQUIDE CANADA INC., carrying on business under the firm name and style of CAMBRIAN WELDING SUPPLIES (Defendants/Appellants)

BEFORE: OSBORNE A.C.J.O., DOHERTY and MACPHERSON JJ.A.

COUNSEL: Allan Herman for the appellant

Peter Best for the respondent

HEARD: May 15, 2001

On appeal from the judgment of Justice J. Stephen O’Neill, dated October 27, 1999 and November 4, 1999.

E N D O R S E M E N T

[1] This is a dispute between a landlord (the respondent) and her tenants (the appellants) involving the interpretation of certain provisions in commercial leases entered into in 1992. The landlord/tenant relationship began in 1987 and was continued by agreements entered into in 1992. The relationship no longer exists and the respondent has sued the appellants claiming that they did not pay all of the rent they were obligated to pay under the terms of the leases after 1992. The appellants claim that they overpaid on the leases.

[2] Each appellant entered into a lease in 1987 and a further lease in 1992. For the purposes of this appeal, the leases entered into by the appellants are identical. We will refer to the 1987 lease and the 1992 agreement.

[3] The appellants raise three issues:

• Is the 1992 agreement properly interpreted as a renewal of the 1987 lease or a new lease?

• Did the respondent charge the appellants for insurance premiums that she was not entitled to charge them for under the terms of the 1992 agreement?

• Did the trial judge err in ordering costs on a solicitor and client basis against both appellants after the date of certain offers to settle and did he err in fixing those costs?

The 1992 Agreement

[4] We agree with the trial judge’s interpretation of the 1992 agreement. It is entitled a “Renewal Lease”. Both introductory recitals tie it directly to the 1987 lease. The second recital states in part:

AND WHEREAS the Lessee has exercised its right of renewal contained in the original Lease and the parties have agreed on the rent for the renewal term …

[5] Nothing in the terms of the 1992 agreement suggests that the provisions in the renewal clause of the original lease (clause 20) were not triggered by the renewal in 1992. Those terms spoke directly to the appellants’ responsibility to pay property taxes and insurance premiums and altered that responsibility from that imposed under the 1987 lease.

[6] There is no ambiguity in the terms of the 1992 agreement relating to the payment of taxes and insurance premiums. Those terms are set out in clause 20 of the 1987 agreement which is in turn triggered by the renewal effected in 1992. The terms clearly required the appellants to pay taxes and insurance premiums.

[7] Although we see no need to consider the extrinsic evidence, we agree with the trial judge’s assessment of that evidence. It supports his interpretation of the 1992 agreement.

The Insurance Premiums:

[8] Under the terms of the 1992 agreement, the respondent was required to:

keep and maintain in both her name and the lessee’s [the appellants] at her own expense, during the term of this lease, fire and extended coverage insurance policies on the lessor’s property.

[9] The respondent was entitled to recover from the appellants the premiums paid for insurance as “additional rent”. The respondent insured the property throughout the relevant period. She provided the appellants with documentation every year indicating the coverage in place and the cost of that coverage. The appellants raised no objection to the coverage referred to in these statements.

[10] Unbeknownst to the appellants, they were never named as insured under the policies. The policies were in the name of the respondent only.

[11] The insurance documents filed at trial indicate that the respondent did not obtain “fire and extended coverage”. Those documents could suggest that the coverage she did get included and went beyond “fire and extended coverage”. Those same documents refer to a single premium charge and do not break down that premium by reference to the various kinds of coverage obtained by the respondent.

[12] The insurance documents stood on their own at trial. Neither party called a witness to explain or amplify them. Consequently, it is impossible to determine with any certainty whether the coverage obtained by the respondent was less than, the equivalent of, or greater than, the coverage contemplated by the 1992 agreement. Nor could it be determined whether the premiums charged to the appellants were all attributable to the insurance coverage that the appellants had agreed to pay for in the 1992 agreement. Finally, the significance of not naming the appellants as insured in the policies was not explored at trial.

[13] The appellants rely on the strict language of the term in the 1992 agreement requiring them to pay insurance premiums. They contend that they were obligated to pay premiums only if they were named in the policy, and only if the policy related exclusively to “fire and extended coverage”. Alternatively, the appellants argue that the respondents had the onus of demonstrating that the insurance they did obtain provided equivalent coverage at the same price as would have been provided by a “fire and extended coverage” policy. The appellants point out that the insurance documents referred to coverage other than fire and extended (eg. public liability). They submit that the respondent had the onus of showing that the premiums charged against the appellants did not include premiums referable to coverage beyond that contemplated in the 1992 agreement.

[14] The respondent submits that the appellants knew the coverage she had obtained and its cost yet never raised any objection to the coverage provided until the respondent commenced this lawsuit. Counsel submits that the appellants’ annual payment of an amount equal to the premiums knowing the coverage that had been obtained is strong evidence that the coverage complied with the insurance described in the 1992 agreement.

[15] This is one of those rare cases that falls to be decided by a determination of which party bears the onus of proof. The documents show that the respondent did not purchase “fire and extended coverage” policies. She also did not name the appellants as insured on the policy. There is no evidence of the relationship between the coverage actually purchased by the respondent and the coverage anticipated under the terms of the agreement. Even if it could be said that some part of the policies purchased by the respondent was the equivalent of a “fire and extended coverage” policy, there is no evidence of the cost of that part of any of the policies.

[16] The trial judge decided that the appellants had the onus to show that the charges made against them for insurance premiums were improper. The trial judge said:

It is for the defendants who raise this issue to satisfy me by clear evidence on a balance of probabilities as to the excess costs attributed to the extra insurance purchased. This they have failed to do, and it is impossible for me on the evidence, to do anything other than to speculate on an appropriate reduction or set-off amount. …

[17] The trial judge misplaced the burden of proof. The respondent sued the appellants claiming that they had not paid all of the rent due under the terms of the 1992 agreement. The respondent has to prove there was a shortfall and the amount of that shortfall. To do so, it was incumbent on the respondent to show that any monies paid in account of insurance premiums were properly owed by the appellants. Monies paid by the appellants on account of insurance premiums were properly payable under the 1992 agreement only if the coverage came within the terms of the 1992 agreement.

[18] It would have been a relatively straightforward matter for the respondent, who arranged the insurance coverage, to lead evidence demonstrating the nature of the coverage obtained and comparing that coverage to the coverage described in the agreement. Similarly, the respondent could have led evidence explaining why the appellants were not named in the policies and the significance, if any, of the failure to name them. Lastly, she could have called evidence as to the cost associated with the various coverages she purchased. None of this was done. Instead, the respondent relied entirely on the appellants’ failure to object to the coverage during the term of the lease to prove this part of her case.

[19] Once the appellants were sued, they did object to the payments. In doing so, they put the respondent to the proof of her claim. She was required to show that amounts paid by the appellants during the 1992 agreement were properly paid pursuant to the provisions of that agreement. The respondent did not meet that burden.

[20] On our arithmetic, the appellants paid some $17,116.88 to the respondent on account of insurance premiums during the life of the 1992 agreement. As the respondent has failed to show that any of this amount was properly charged to the appellants under the terms of the 1992 agreement, it should be deducted from the total amount owing to the respondent by the appellants. We trust that the parties can do the necessary arithmetic and formulate an appropriate order.

Costs

[21] As we would vary the trial judge’s order, we do not have to decide whether he made the correct costs order. As indicated at the end of oral argument, we will receive written submissions on the question of costs at trial and on appeal. Those submissions should be provided to us within 10 days from the release of these reasons.