DATE: 20040330

DOCKET: C38652

COURT OF APPEAL FOR ONTARIO

RE:

THE LAVIN AGENCY LIMITED (Respondent) v. BLACKHALL & COMPANY LIMITED (Appellant)

BEFORE:

SIMMONS and ARMSTRONG JJ.A. and LANE J. ad hoc

COUNSEL:

John A. Howlett

for the appellant

Warren S. Rapoport

for the respondent

HEARD:

March 23, 2004

On appeal from the judgment of Justice B. Croll of the Superior Court of Justice dated June 28, 2002.

E N D O R S E M E N T

[1] The appellant is a commercial landlord. It entered into a lease of office premises with the respondent tenant dated March 22, 2000. The lease includes the following provisions:

3.01 THE LANDLORD COVENANTS WITH THE TENANT DURING THE TERM: The rental set out above is a Gross Rent and is inclusive of Base Rent, all Taxes, Maintenance, Insurance, Utilities and other costs and no other amounts shall be payable save for G.S.T. and similar Taxes. The Landlord shall operate and maintain the Building on a first class manner throughout the Term.

4.00 THE TENANT COVENANTS WITH THE LANDLORD DURING THE TERM: To pay Hydro directly to the Utility company.

[2] On January 24, 2002, the tenant applied for an order determining whether it was entitled to deduct from the “Gross Rent” payable to the landlord the amount that it was required to pay for “Hydro directly to the Utility company”. At the outset of the application, the parties agreed that the lease should be interpreted without reference to conversations and documents that were entered into before the lease was made.

[3] The application judge held that the tenant is entitled to deduct from Gross Rent the amounts it is required to pay directly to the utility company for hydro. The sole issue on this appeal is the proper interpretation of clauses 3.01 and 4.00 of the subject lease.

[4] In our view, the application judge erred, for three reasons, in holding that the tenant is entitled to deduct amounts paid directly to the utility company for hydro.

[5] First, although it may appear on a first reading that clauses 3.01 and 4.00 of the lease are inconsistent, the inconsistency is resolved by recognizing that clause 4.00 is a specific provision that qualifies the more general provision contained in clause 3.01. In B.G. Checo International Ltd. v. British Columbia Hydro and Power Authority, [1993] 1 S.C.R. 12, the Supreme Court of Canada said:

It is a cardinal rule of the construction of contracts that the various parts of the contract are to be interpreted in the context of the intentions of the parties as evident from the contract as a whole: K. Lewison. The Interpretation of Contracts (1989), at p. 124; Chitty on Contracts (26th ed. 1989), vol. 1, at p. 520. Where there are apparent inconsistencies between different terms of a contract, the court should attempt to find an interpretation which can reasonably give meaning to each of the terms in question. Only if an interpretation giving reasonable consistency to the terms in question cannot be found will the court rule one clause or the other ineffective: Chitty on Contracts, supra, at p. 526; [additional citations omitted]. In this process, the terms will, if reasonably possible, be reconciled by construing one term as a qualification of the other term: Forbes v. Git, [1922] 1 A.C. 256; Cotter v. General Petroleums Ltd., [1951] S.C.R. 154. A frequent result of this kind of analysis will be that general terms of a contract will be seen to be qualified by specific terms – or, to put it another way, where there is apparent conflict between a general term and a specific term, the terms may be reconciled by taking the parties to have intended the scope of the general term to not extend to the subject-matter of the specific term.

[6] The principle set out in B.G. Checo International Ltd. is applicable here. Clause 3.01 provides that the Gross Rent payable to the landlord includes Base Rent as well as a list of expenses associated with the operation of the Building, namely, “all Taxes, Maintenance, Insurance, Utilities, and other costs”. Clause 3.01 also provides that no other amount shall be payable and requires that the Landlord operate the Building in a first class manner. However, clause 4.00 is a more specific provision. It identifies a particular category of utilities, and specifies that the tenant should pay that expense directly, rather than treating it as an expense that is paid by the landlord and passed on to the tenant as part of Gross Rent. By interpreting clauses 3.01 and 4.00 in this way, it can be seen that clause 3.01 is a general provision dealing with expenses that are payable by the landlord, while clause 4.00 addresses a specific expense payable by the tenant directly. Moreover, the word “directly” has a distinct meaning and the apparent inconsistency between clauses 3.01 and 4.00 is resolved.

[7] Second, the lease does not contain any specific language authorizing the tenant to deduct amounts paid directly to the utility company for hydro. It would be necessary to read in or imply such language in order to adopt the interpretation suggested by the tenant.

[8] Third, the interpretation of clause 4.00 that we have adopted is consistent with the interpretation adopted by the parties in relation to the insurance provisions of the lease. Like Utilities, Insurance is one of the expenses that clause 3.01 lists as being included in Gross Rent. The tenant takes no issue with the fact that clause 34.00 of the lease requires it to take out and pay for comprehensive general liability insurance for the leased premises.

[9] While it is true that clause 34.00 of the lease is more detailed than clause 4.00, in that it specifies that the tenant must “take out and keep in force” the necessary insurance, that does not change the fact that, like clauses 4.00 and 3.01, there is an apparent inconsistency between clause 34.00 and clause 3.01. The trial judge discounted the significance of the tenant’s position concerning clause 34.00 to the interpretation of clause 4.00 by finding that it would be highly unusual for a landlord to pay the tenant’s insurance. However, in the absence of evidence on the application, it was not open to her to conclude that the hydro charges under consideration should be handled in a different way than tenant’s insurance.

[10] For the foregoing reasons, we conclude that the application judge’s interpretation of the lease is not correct. Accordingly, we would allow the appeal, set aside the judgment of the application judge and substitute an order dismissing the tenant’s application. We decline to make a declaratory order setting our conclusions concerning the interpretation of the lease as there was no cross-application before the court below. However, it flows from this decision that the tenant should pay to the landlord any amounts it has deducted from Gross Rent on account of hydro paid directly to the utility company.

[11] The appellant is entitled to costs of the appeal on a partial indemnity basis fixed at $7,000 inclusive of disbursements and applicable G.S.T. and to costs of the application fixed at $10,000 inclusive of disbursements and applicable G.S.T.

“Janet Simmons J.A.”

“Robert P. Armstrong J.A.”

“D. Lane J. ad hoc”