Harry Winton Investments Ltd. v. CIBC Development Corporation et al.

[Indexed as: Harry Winton Investments Ltd. v. CIBC Development Corp.]

52 O.R. (3d) 417

[2001] O.J. No. 276

Docket No. C34233

Court of Appeal for Ontario

Abella, Laskin and Rosenberg JJ.A.

January 31, 2001

Torts--Inducing breach of contract--Interference with contractual relations--Tenant abandoning premises because of alleged fundamental breach by landlord--Tenant renting new premises from defendant--Landlord suing defendant for inducing breach of contract and interference with contractual relations --Defendant not inducing breach of contract because tenant had already decided to end lease--Difference between bringing about a breach and taking advantage of an existing voluntary decision by contract breaker to discontinue its contract.

The plaintiff, HWI Ltd., a landlord, decided to rent space to an abortion clinic. The defendant P, which was the major tenant in the landlord's building, objected. In a letter written in November 1992, it took the position that leasing to the clinic would impair the value of P's exclusive right to display its name on the building and would constitute a breach of the covenant of quiet enjoyment, providing P with grounds for termination of the lease. HWI Ltd. disputed that P was entitled to terminate the lease, and, during the following months, discussions to resolve the situation continued without success. On February 24, 1993, P commenced an action for a declaration that HWI Ltd. had fundamentally breached the lease. By this time, P had retained an agent to locate new premises. On February 25, 1993, the principal of P met the president of CIBC Development Corporation ("CIBC") and told him that P was searching for new premises. On June 15, 1993, P signed a lease for new premises. It abandoned the premises leased from HWI Ltd. Four-and-one-half years later, HWI Ltd. sued CIBC for inducing breach of contract and interference with contractual relations. CIBC moved for summary judgment dismissing the action as against it. The motion was granted, and HWI Ltd. appealed.

Held, the appeal should be dismissed with costs.

Before there was any contact between P and CIBC, P had already decided to terminate the lease because of the presence of an abortion clinic in the building which bore its corporate logo. It was beyond dispute from the evidentiary record that CIBC did not induce P to breach the lease. CIBC's efforts to persuade P to become a tenant did not constitute an inducement to breach P's existing lease because P had already decided to terminate it. CIBC could only be liable if P had not yet decided to terminate the lease and had been approached by CIBC to consider new premises. There is a difference between bringing about a breach and taking advantage of an existing voluntary decision by a contract breaker to discontinue its contract. There being no evidence that CIBC induced a breach of the lease or unlawfully interfered with contractual relations between HWI Ltd. and P, there was no genuine issue for trial. Accordingly, the appeal should be dismissed with costs.

APPEAL from a summary judgment dismissing an action for inducing breach of contract and interference with contractual relations.

Cases referred to

D.C. Thomson and Co. Ltd. v. Deakin, [1952] 1 Ch. 646; Harry Winton Investments Ltd. v. 962247 Ontario Ltd. (June 16, 1996), action no. 93-CQ-35536; Irving Ungerman Ltd. v. Galanis (1991), 1991 7275 (ON CA), 4 O.R. (3d) 545, 83 D.L.R. (4th) 734, 20 R.P.R. (2d) 49n, 1 C.P.C. (3d) 248 (C.A.); Zander v. Canac Kitchens Ltd., [1988] O.J. No. 2105

Authorities referred to

Fridman on the Law of Torts in Canada, 1990 ed., vol. II

John T. Morin, Q.C., and John G. Webster, for appellant. James P. Dube and Andrew Pollock, for respondents.

The judgment of the court was delivered by

[1] ABELLA and ROSENBERG JJ.A.: -- This is an appeal from the decision of Jennings J. granting summary judgment to CIBC Development Corporation (now CIBC) ["Development"], one of two defendants in an action by the appellant for inducing breach of contract and unlawful interference with contractual relations. The contract was a lease entered into between the appellant and Padulo Advertising Inc. The allegations of inducing breach of contract and unlawful interference with contractual relations arise because the defendant Padulo Services Inc. (a company affiliated with Padulo Advertising Inc.) entered into a lease with Development during the currency of the appellant's lease with Padulo Advertising Inc. and the latter abandoned its leased premises in the appellant's building. For the purposes of the summary judgment motion and this appeal, it is unnecessary to distinguish between the two Padulo entities or its principal, Richard Padulo.

[2] The relationship between Padulo and Development arose after a social event at which both Padulo, his real estate broker, and Al Flood, the President of CIBC, were present. Padulo told Flood that he was searching for new premises as a result of the presence of an abortion clinic in his building. There was no contact between Development and Padulo until February 25, 1993. Padulo signed a lease for new premises with Development on June 15, 1993.

[3] The motions judge dismissed the appellant's claim for inducing breach of contract on the basis that there were no material facts in dispute. We agree. In our view, the test set out in Irving Ungerman Ltd. v. Galanis (1991), 1991 7275 (ON CA), 4 O.R. (3d) 545, 83 D.L.R. (4th) 734 (C.A.) -- and never departed from by this court -- has been satisfied in this case. There is no genuine issue for trial on a material fact revealed by the evidence and we would therefore dismiss the appeal.

[4] The chronology is important. As early as October 22, 1992, the solicitors for the tenant Padulo Advertising Inc. wrote to Ross McKerron, Vice-President of the parent company of the landlord, Harry Winton Investments Limited. The letter confirmed Padulo's "serious reservations and problems" with Winton's decision to lease space to an abortion clinic, and warned of the possibility of claiming damages, including damages for breach of the covenant of quiet enjoyment. The letter reminded the landlord that Padulo had agreed to lease premises in the building in large part because, as the major tenant, it had been granted an exclusive right to have its name or corporate logo on the exterior of the building. The prominence of the logo meant the inevitable and unwanted display of Padulo's name in any press coverage in connection with the controversy surrounding the clinic. Moreover, the letter stated, the presence of the clinic in the same building had caused expressions of concern and disapproval from Padulo's clients and employees.

[5] Padulo's solicitors sent a second letter to Mr. McKerron on November 6, 1992, indicating that the expressions from employees and clients had intensified, including the threat of lost business for Padulo. In addition, the spectre raised in the earlier letter of the corporate logo being displayed by the press in a harmful way had, according to the letter, materialized. The depth of this concern was stated in the following terms:

As you know, one of the major benefits Padulo received on entering into this lease, for which it paid a significant premium, was the exclusive right to display its name on this building. Recent events have, as you can appreciate, transformed this benefit into a liability for our client, by ensuring that its name is inextricably linked with the current controversy, through media references to the "Padulo Building". Clearly, any value realized through this exclusive right has now been completely negated and offset by this negative publicity.

[6] The letter concludes with Padulo's solicitor's opinion that the landlord's lease with the abortion clinic constituted a breach of Padulo's covenant of quiet enjoyment, a fundamental term in the lease. The concluding words of the letter are particularly relevant:

We have advised our client that on the basis of the aforesaid breach it is entitled to terminate its lease with your company.

May we please have your position in this regard by no later than 5:00 p.m., Tuesday, November 10, 1992.

[7] On the November 10 deadline, counsel for the landlord sent a letter to Padulo's lawyer contradicting his claim that Padulo was entitled to terminate the lease based on the landlord's lease with the abortion clinic. Because there were eight years left in the lease and because the tenant's arrears in rent exceeded $165,000, the landlord's lawyer suggested that if Padulo vacated the premises, "appropriate action" would be taken to recover the rents for the balance of the term of the lease. The letter concludes with a request that any action by Padulo await the outcome of discussions between the landlord and the clinic.

[8] On November 17, 1992, counsel for Winton sent another letter to Padulo's lawyer complaining that the arrears were even higher than previously indicated, that they had existed for over a year, and that no rent payments had been made for six months. Padulo was put on notice that if the arrears were not paid by November 20, the landlord would "take appropriate steps to collect the monies owing and to enforce its rights under the lease".

[9] The next letter to Padulo came directly from the landlord, observing that since the arrears were paid only in part, leaving an outstanding balance of $110,449.65, the landlord had, under the terms of the lease:

the right to re-enter [the] premises at 12:01 p.m. on Friday, November 20, 1992, should payment in full not be received, and re-lease your premises on your behalf. Should Harry Winton Investments Ltd. suffer any financial losses in re- leasing your premises, Padulo Advertising Inc. is obligated to reimburse Harry Winton Investments Ltd. for such losses. Our solicitors have tried to discuss this matter with your solicitors, but have been unsuccessful.

(Emphasis added)

[10] On January 20, 1993, Padulo's solicitors sent Winton's solicitors a letter enclosing a further payment of the arrears, but on condition that:

As before, this payment is provided to you without prejudice to our client's position that there has been a breach of the covenant of quiet enjoyment by virtue of the lease to Benya Inc. by Harry Winton Investments Ltd.

[11] This letter set out more of Padulo's concerns resulting from the clinic's presence in the building, and ask[ed] for an accurate accounting of the arrears owing. Padulo claimed that there was a discrepancy between "the sum claimed as owing and the sum which would otherwise be owing under the subject lease, but for your client's actions in breaching same". (Emphasis added)

[12] On February 18, 1993, Mr. McKerron wrote to Richard Padulo, the President of Padulo Advertising Inc., advising him that the clinic would "commence operations" on February 24. The letter also summarized the landlord's position:

I wish to reaffirm our earlier advice to you that the Lease with [the abortion clinic] does not constitute a breach of the covenant for quiet enjoyment in your Lease. Nor does the fact of Benya Inc.'s tenancy amount to any breach of the terms of your lease. Accordingly, it is our position that you have no grounds upon which to consider terminating your Lease.

We expect you to honour your obligations has [sic] under its Lease. I wish to advise you that we will take appropriate action to recover the rents provided for in the Lease for the balance of the term, in the event that you should vacate the premises and cease making the payments called for under the Lease.

[13] On February 24, 1993, Padulo filed a statement of claim seeking, among other relief, a declaration that Winton had "fundamentally breached" the terms of the lease and a declaration that the lease "has been terminated and Padulo is no longer bound by its terms". By this time, Padulo had already retained an agent to assist in locating new premises. Four-and- a-half years later, Winton brought this action against CIBC Development Corporation, claiming damages in the amount of $3,500,000.

[14] These are the events that preceded any contact between Padulo and CIBC Development Corporation. Their relevance lies in demonstrating that before Development followed up on the social exchange between Al Flood and Richard Padulo, Padulo had made up his mind to terminate the lease because of the presence of an abortion clinic in the building bearing his corporate logo. Padulo's conduct may yet be found to constitute a breach of his contractual relationship with Winton, but this issue has not yet been determined.

[15] What appears beyond dispute from the evidentiary record before the motions judge is that neither Development, nor any of the other landlords with whom Padulo was negotiating for new premises, in any way induced Padulo to breach the lease. As Padulo stated in his affidavit:

The decision made by Padulo Advertising Inc. that it needed to leave the Bayview premises was made without any influence or participation whatsoever from CIBCDC. Indeed, that decision had already been made before any contact at all had taken place with CIBCDC about the possibility of leasing premises from CIBCDC. By the time discussions with CIBCDC were first initiated, the management of Padulo Advertising Inc. had firmly concluded that we could not remain in the Bayview premises in the prevailing circumstances, and a process had already been initiated, with the assistance of outside brokers, to identify appropriate office leasing opportunities from which the best available alternative would be selected.

[16] The essence of the landlord's argument, as we understand it, is that because Padulo and the landlord were in ongoing negotiations when the lease was signed with Development, any evidence of Padulo's prior intent to terminate the lease was neutralized. These negotiations raised the possibility, according to the landlord, of Padulo agreeing to remain where it was, rendering Development's intervening importunings potentially culpable.

[17] Although Mr. McKerron's affidavit referred to negotiations with Padulo, there was no specificity as to the timing or substance of the discussions. The only evidence to which counsel for Winton was able to refer to substantiate the possibility that Padulo would remain was a letter dated May 19, 1993 from Padulo to Gerhard Moog, the president of the landlord company. In this letter, Padulo acknowledged that the discussions with the landlord were recently resurrected as a result of Moog's personal involvement. At this stage, Padulo was close to entering into a new lease with a new landlord. He explained the pressure he was under in order to impress upon Moog the importance of a quick resolution:

After our first meeting last Tuesday, Ross [McKerron] asked me to hold off for 24 to 48 hours. I have in good faith held off for more than a week and I am now under incredible pressure by my partners, staff, clients and new landlords.

Also there is a major issue that is relatively personal. I have given my word and like you, I would not go back on it unless there is some earth shattering revelation that I could discuss with our new landlords and get them to understand.

Gerhard, I need to be very specific about exactly what the situation is . . . will the clinic move or not, and if so, when?

If the clinic doesn't move and we do, then many of the options you discussed i.e. the government taking over our space etc., still represent an opportunity.

In an attempt to accommodate you in a reasonable way, the latest we can wait for your final response is 10:00 a.m., Tuesday, May 25, 1993.

(Emphasis added)

[18] By May 25, 1993, the clinic had not agreed to move, nor was there any suggestion that the clinic would move at any time before the expiry of its lease. It seems clear from the letter to Moog -- and the entire record before the motions judge -- that what Padulo meant by an accommodation was the clinic moving out of the building.

[19] The fact that negotiations were ongoing between Padulo and Winton in the weeks between the filing of the statement of claim on February 24 and the signing of a new lease with Development on June 15, 1993 was not surprising. There were substantial arrears and other issues to be resolved. But nowhere in the record is there any evidence that the negotiations included the possibility that Padulo would resile from his outspoken intention to terminate the lease if the clinic remained in the building.

[20] Negotiations with other potential landlords during this period were entirely, on the evidence, the result of Padulo's unwavering intention to leave the building. It should be no surprise that any of them, including Development, translated their active interest in Padulo's business into an intense lobbying effort. But these concerted efforts to persuade Padulo to become a tenant in their premises is not an inducement to breach his contract with Winton if the decision to terminate pre-dated their conduct.

[21] The motions judge concluded that, although there were some facts in dispute, there were no material facts in dispute based on the elements of the tort of inducing breach of contract. He held that an essential element is proof that the defendant procured the breach and there was no evidence that Development procured the breach of the lease agreement between Padulo and the appellant. The motions judge understood the position of the plaintiff/appellant to be as follows [at para. 7]:

The plaintiff's position appears to be that once Development became aware of the lease between the plaintiff and Padulo, Development was obliged to satisfy itself that Padulo had good grounds in law to establish a breach of the lease by the plaintiff before it, Development, could agree to rent to Padulo. As put by Mr. Morin [counsel for the plaintiff/appellant], once Development became aware of the contemporaneous settlement negotiations between plaintiff and Padulo, it was obliged to "back off".

[22] The motions judge held that this was not a correct view. As he said [at para. 9]:

It is not for Development to adjudicate the legitimacy of the claim of breach. To suggest otherwise would make the negotiating of commercial leases virtually impossible.

[23] He also held that placing before a prospective tenant the terms upon which a landlord is prepared to lease could not in those circumstances amount to "procuring a breach of the prior lease". We agree because, as indicated, the evidence shows that Padulo had already decided to terminate the lease.

[24] In approaching this appeal we must, of course, bear in mind that it has not been established that Padulo breached its lease when it left the premises and refused to pay any further rent. Padulo's position is that it is the appellant that breached the terms of the lease, entitling Padulo to treat the lease as at an end and abandon the premises. Nevertheless, there was no suggestion that whether Padulo breached the lease is not a genuine issue for trial. That is an issue in the outstanding action by Padulo Advertising Inc. against the appellant, the counterclaim by the appellant in that action and in the action by the appellant against Padulo Services Inc. [See Note 1 at end of document.]

[25] In our view, because Development approached Padulo and offered to lease space to it at a time that Padulo had already decided to breach its contract with the appellant, there can be no liability. The possibility of liability could only arise if Padulo had not yet decided to terminate its lease and had been approached by Development to consider new premises. The law in that respect is accurately stated by Fridman on the Law of Torts in Canada, 1990 ed., vol. II at p. 298:

Threats [that cause a party to breach his contract] need not be established. Liability will also be imposed if the defendant induces the contract-breaker to enter into a contract with him that is inconsistent with an existing contract with the plaintiff, for example, by offering him more money for property which is contracted to be sold to the plaintiff. The fact that the contract-breaker voluntarily enters into such an inconsistent contract is not a defence. But the fact that the contract-breaker has already determined not to perform his contract will negate liability if there is a later act by the defendant which would otherwise have amounted to an inducement.

(Emphasis added)

[26] A similar point was made by Mandel J. in Zander v. Canac Kitchens Ltd., [1988] O.J. No. 2105, where he pointed out that one must differentiate "between the third party who 'in making the inconsistent dealing has merely taken advantage of the voluntary decision already of the [contract breaker] to discontinue his contract' and the third party who 'has in fact been instrumental in bringing about the breach'".

[27] In D.C. Thomson and Co. Ltd. v. Deakin, [1952] 1 Ch. 646, Jenkins L.J. put a number of examples that would amount to inducing breach of contract including the following at p. 694:

But the contract breaker may himself be a willing party to the breach, without any persuasion by the third party, and there seems to be no doubt that if a third party, with knowledge of a contract between the contract breaker and another, has dealings with the contract breaker which the third party knows to be inconsistent with the contract, he has committed an actionable interference . . .

[28] At p. 695, Jenkins L.J. went on to point out that in all of the examples "there is something amounting to a direct invasion by the third party of the rights of one of the parties to the contract, by prevailing upon the other party to do, or doing in concert with him, . . . that which is inconsistent with the contract".

[29] The evidence before the motions judge from Development was that Padulo had already decided to break its lease with the appellant. It was also the evidence of Mr. Padulo that he had already decided to leave the appellant's premises prior to any discussions with Development and "without any influence or participation whatsoever" from Development. There being no evidence that Development induced a breach of the lease or unlawfully interfered with contractual relations between Padulo and Winton, there was therefore no genuine issue for trial.

[30] We agree with Jennings J. that there is no evidentiary foundation for concluding that there is a genuine issue requiring a trial. The appeal is dismissed with costs.

Appeal dismissed with costs.

Notes

Note 1: In another action between this appellant and another tenant, Somers J. found that the presence of the clinic did not constitute a breach of the covenant for quiet enjoyment with that tenant: Harry Winton Investments Ltd. v. 962247 Ontario Ltd. (June 16, 1996), action no. 93-CQ-35536.