DATE: 20021114

DOCKET: C38055

COURT OF APPEAL FOR ONTARIO

RE: 1098748 ONTARIO LIMITED (Applicant)(Appellant) –and–

LOBLAWS INC. (Respondent)(Respondent in Appeal)

BEFORE: MORDEN, LABROSSE and MacPHERSON JJ.A.

COUNSEL: Peter H. Griffin and Matthew Peter Sammon, for the appellants

Robert J. Potts and Roger J. Horst, for the respondents

HEARD: October 18, 2002

On appeal from the order of Justice Sandra Chapnik dated March 27, 2002.

E N D O R S E M E N T

[1] This is an appeal by 1098748 Ontario Limited (“the Landlord”) from two judgments of Justice Chapnik.

[2] The first judgment granted the respondent’s application for a declaration that, under its lease, it is unreasonable for the Landlord to refuse to consent to the respondent’s food supermarket’s change of name and banner in the Agincourt Mall from “Loblaws” to “No Frills.” The judgment also declared that the Landlord is being unreasonable in refusing to allow Loblaws to make the renovations for the proposed change of name and banner, and to temporarily close down the store while doing so.

[3] The second judgment dismissed the Landlord’s cross-application for a declaration that it was entitled to withhold arbitrarily its consent to a sublease to a franchisee.

[4] The Landlord also appeals the order of the application judge refusing to re-open the application in light of new evidence.

[5] In 1977, Loblaws entered into a lease agreement with the Landlord’s predecessor for a term, including renewals, of about fifty years. Loblaws is an anchor tenant operating a traditional full-line Loblaws supermarket in the Landlord’s Agincourt Mall. Loblaws is seeking to change the banner and name of the store from “Loblaws” to “No Frills Discount Supermarket.” The Landlord has refused to consent to the change.

[6] There are five grounds of appeal. It is submitted that the judge:

(1) Erred in the interpretation of the use provisions of the lease – section 6.0;

(2) Failed to consider the economic impact of conversion upon the mall;

(3) Erred in her interpretation of the continuous operation provisions in the lease – sections 6.02 and 6.03;

(4) Failed to grant the Landlord a declaration that it was entitled to withhold consent arbitrarily to the franchising of the store; and

(5) Failed to re-open the application of the parties to receive new evidence.

Issue 1: Did the judge err in her interpretation of the use provisions of the lease?

[7] In her detailed reasons for decision, the judge made the following findings at paragraphs 32, 33, 34 and 37:

[32] Even accepting that the differences between a full-line Loblaws and the proposed limited-line No Frills store amount to a change in style and philosophy, however, the real question is do they differ sufficiently to change the use of the business of a supermarket for the sale of food and other non-food items, as is carried on by the tenant in a majority of its similar stores in shopping centres in Ontario and as contemplated in section 6.01 of the lease?

[33] Despite the differences in style and philosophy, I find that the overriding and distinguishing feature of both Loblaws and No Frills is that they are banners for a food supermarket dedicated to the sale of food and other non-food items. When asked whether it was his position that No Frills is a banner for a food supermarket, Mr. Winter, [the Landlord’s expert witness, responded,] “It is a banner, yes, for a food supermarket. Yes.”

[34] Based on the material before me, I conclude that the change in the offering and presentation of food distribution intended by the tenant through its name and banner change is not a change in the nature of a different or other food supermarket than is carried on by the majority of Loblaws’ other stores. The name No Frills is ordinarily identified with the sale of food and some non-food items as is the case with other Loblaws banners and supermarkets. Indeed, the Loblaws store in the mall already uses the No Frills colours - yellow and white. Moreover, the proposed change is consistent with the operations of other retailers in the mall and the surrounding trade area. I find that the proposed change of banner is a permitted use under the terms of the lease.

[37] As a result, I can find no reasonable objection to the proposed change of banner or name. Loblaws has satisfied its onus to establish that the landlord has unreasonably withheld its consent to the change of name and banner of the subject premises from Loblaws to No Frills. No reasonable person would withhold consent to the proposed change in light of all of the circumstances and commercial realities in this case.

[8] With respect to this issue, the judge stated the law correctly, reviewed the relevant evidence, and made findings that are supported by the evidence. In the recent decision of the Supreme Court of Canada in Housen v. Nikolaisen (2002), 2002 SCC 33, 211 D.L.R. (4th) 577 (S.C.C.), Iacobucci and Major JJ., speaking for the majority, said in para. 24:

We take the above comments of McLachlin J. [in Toneguzzo-Norvell (Guardian ad litem of) v. Burnaby Hospital, [1994] 1 S.C.R. 114 at 121-122] to mean that, although the same high standard of deference applies to the entire range of factual determinations made by the trial judge, where a factual finding is grounded in an assessment of credibility of a witness, the overwhelming advantage of the trial judge in this area must be acknowledged. This does not, however, imply that there is a lower standard of review where witness credibility is not in issue, or that there are not numerous policy reasons supporting deference to all factual conclusions of the trial judge. In our view, this is made clear by the emphasized portion of the above passage. The essential point is that making a factual conclusion, of any kind, is inextricably linked with assigning weight to evidence, and thus attracts a deferential standard of review.

[9] Although the evidence in this case consists of a written record and affidavits, the factual conclusions of the judge attract a deferential standard of review. We do not think that Chapnik J. erred in her interpretation of the use provisions of the lease.

Issue 2: Did the judge fail to consider the economic impact of conversion upon the mall?

[10] As the judge found no change of use within the meaning of the lease provisions, she considered it unnecessary to determine the potential effect or impact of the change from Loblaws to No Frills on the mall.

[11] However, she did consider the evidence on economic impact. She noted that much of the projections proffered by the Landlord on economic impact was highly speculative. She also observed that the Landlord’s own expert agreed that it was not inappropriate for any of the mall’s current retailers to be in the same mall as No Frills. She concluded that the change of name and banner was consistent with the market realities.

[12] Once again, we see no error in her disposition of this issue.

Issue 3: Did the judge err in her interpretation of the continuous operation provisions of the lease?

[13] In changing to a No Frills store, Loblaws plans to invest $2 million to upgrade the store, $200,000 of which is to be used directly for building construction. The store would have to be closed for 6½ to 7 weeks. The Landlord sought a declaration that Loblaws is obliged to conduct the business of a supermarket on the whole of the leased premises continuously and that any cessation of operations would be a breach of Loblaws’ 50-year lease.

[14] On this issue, the judge stated at para. 40 of her reasons:

[40] I agree with the tenant that it is ludicrous to believe that closing the store for between 6½ to 7 weeks where there is a 50-year lease, for the purpose of making renovations and improvements to the premises or using part of the premises for this purpose, would contravene the intent and meaning of the continuous use clause in the lease. I can find no reasonable grounds for the landlord to withhold its written approval of the tenant’s proposed renovation of the premises. The landlord’s request for a declaration to that effect is denied.

[15] Looking at the lease in its entirety, and in light of the evidence relating to this issue, we are of the view that her conclusion to refuse the landlord’s request is reasonable in the circumstances. In relation to this issue, the landlord also alleges a technical breach of the terms of the lease on the failure of Loblaws to submit plans for renovations prior to the commencing of its application. Whatever deficiencies may have existed at that time have been remedied by the extensive material produced on the application and during cross-examination. We would not give effect to this ground of appeal.

Issue 4: Did the judge err in not granting the Landlord a declaration that it was entitled to withhold consent to the franchising of the store arbitrarily?

[16] The landlord sought a declaration that it could arbitrarily prevent Loblaws from operating a No Frills store on the premises through a franchisee. The landlord insists that the potential future franchising of the food supermarket was a relevant issue before the judge (and on the appeal) even though Loblaws has withdrawn the component of its application seeking a declaration regarding whether a franchisee could operate the store.

[17] As Loblaws withdrew its application, we see no error in the exercise of the judge’s discretion to not deal with this issue.

Issue 5: Did the judge err in not re-opening the application to hear new evidence?

[18] After the judge delivered her reasons, the landlord brought a motion to re-open the hearing to introduce new evidence that Loblaws had apparently failed to disclose. More specifically, the Landlord alleged that Loblaws had not made full disclosure of the status of its dealings with a franchisee for its proposed No Frills store.

[19] The judge reviewed the proposed evidence and concluded that it did not meet the test for the admission of new evidence as set out in this court’s decision in DeGroote v. Canadian Imperial Bank of Commerce (1999), 121 O.A.C. 327 at para. 3, aff’g [1998] O.J. No. 1696 (Gen. Div.). The evidence did not meet the requirement that the nature of the evidence would have affected or altered the ultimate decision of the application or cross-application. Furthermore, that evidence could have been discovered by the exercise of reasonable diligence.

[20] The judge gave cogent reasons for her conclusions and we see no basis to interfere with the exercise of her discretion.

[21] The appeal is dismissed with costs fixed at $31,000.00 including disbursements and G.S.T.

Signed: “J.W. Morden J.A.”

“J.M. Labrosse J.A.”

“J.C. MacPherson J.A.”