Citation: 1213763 Ontario Inc. v. Shopsy's Hospitality Inc., 2008 ONCA 863
Date: 20081219
Docket: C48990
COURT OF APPEAL FOR ONTARIO
Doherty, Feldman and Cronk JJ.A.
BETWEEN
1213763 Ontario Inc. & London Life Insurance Company
Applicants (Respondents in Appeal)
and
Shopsy’s Hospitality Inc.
Respondent (Appellant)
AND BETWEEN
Shopsy’s Hospitality Inc. and Irish Pub Development Corp., carrying on business as Embassy Hospitality Group
Applicants (Appellants)
and
GWL Realty Advisors Inc., 1213763 Ontario Inc. and London Life Insurance Company
Respondents (Respondents in Appeal)
Allan D. J. Dick, for the appellants
Wolfgang Kaufmann, for the respondents
Heard: December 8, 2008
On appeal from the judgment of Justice Ellen Macdonald of the Superior Court of Justice dated May 15, 2008, and reported at 2008 ONSC 23702.
CRONK J.A.:
(1) Background
[1] This appeal arises from a dispute regarding a tenant’s alleged entitlement to an extension or a renewal of the lease of commercial premises located at 33 Yonge Street, in the City of Toronto (the “Leased Premises”).
[2] For many years, Shopsy’s Hospitality Inc. (“SHI”) has operated a Shopsy’s delicatessen at the Leased Premises pursuant to an original lease dated November 15, 1982, the term of which was extended or renewed by written agreement on five separate occasions (collectively, the “Lease”). Under its current terms, the Lease is set to expire on December 31, 2008. It contains no right of renewal or extension in favour of SHI.
[3] On June 1, 2006, the appellant, Irish Pub Development Corp., carrying on business as Embassy Hospitality Group (“IPD”), wrote to the respondent GWL Realty Advisors Inc. (“GWL”) – the property manager representative of the respondents 1213763 Ontario Inc. and London Life Insurance Company (the “Landlords”) – and expressed interest in renting the Leased Premises.
[4] In its letter, IPD indicated: (i) its awareness that the Lease had a “short term remaining”, that the Leased Premises are a “prime location”, and that the Landlords “may already have parties interested in locating there”; (ii) that it had made a proposal to a food service company to acquire, among other businesses, the Shopsy’s delicatessen at the Leased Premises; (iii) that if it was successful with its acquisition proposal but was not able to negotiate a lease extension with the Landlords concerning the Leased Premises, it would plan “a modest make-over” of the Leased Premises for the remaining term of the Lease; and (iv) conversely, if it was successful with both its acquisition plan and its negotiations with the Landlords for “a longer term lease”, it “could envisage spending from $750,000 to $1 million to bring an Upgraded ‘Premium Casual Deli Restaurant’ into that market but under the existing [Shopsy’s] brand name” and it would “start to overhaul the premises immediately”.
[5] Discussions then ensued between IPD and the Landlords, during which IPD learned that another established Toronto restaurateur, Oliver Bonacini Restaurants (“Oliver”), held a right of first offer over the Leased Premises should the Landlords seek to rent the Leased Premises to a party other than SHI.
[6] IPD claims that at its initial meeting with the Landlords’ representatives in mid-June 2006, it made clear to the Landlords that it was unwilling to compete with Oliver for the rental of the Leased Premises. IPD further asserts that the Landlords represented to it that they had refused to consider Oliver as a tenant of the Leased Premises and that if the Lease was amended and its term was extended while SHI remained the tenant of the Leased Premises, Oliver’s right of first offer would not be triggered. As a result, IPD says, it was understood that in order to rent the Leased Premises and avoid Oliver’s right of first offer, it would be necessary for IPD to acquire control of SHI.
[7] On July 4, 2006, IPD wrote to GWL, indicating that it had executed an agreement with the various parties involved with the ownership of SHI regarding the acquisition of all Shopsy’s delicatessen locations. In that letter, IPD also stated:
[I]n order to commit to a full agreement with SHI, we will need to work with you on an accelerated time basis regarding 33 Yonge Street, if that is possible and available from your perspective. While we understand that it may not be realistic to conclude a full and binding lease agreement within that time, we would be prepared to make our decisions with SHI on the basis of a summary offer and commitment with you that highlights the major business terms for a lease. Accordingly we feel that we have to accelerate our discussions with you and determine immediately the fundamental lease conditions – subject of course that our business model and renderings will ultimately be acceptable to you.
As a result, although we are in the midst of completing our work for presentation to you we are writing to see if you would nevertheless be willing to accelerate discussions and start meeting with us now with the objective of reaching a conclusion on the fundamental business terms for the space. We are aware that by asking you to work within a limited time frame we may be pre-empting your desired approach for dealing with competing proposals by Peter Oliver or others and ourselves for the space. Unfortunately we have had no choice in establishing the time lines for our transaction with SHI and although we are very motivated to close with SHI and include all of their operations it is imperative for us to know the status for an extension at 33 Yonge before doing so.
33 Yonge represents a tremendous long term opportunity for both of us but it will be expensive and we unfortunately would prefer to pass on good opportunities rather than assume risks that we cannot fully assess. We need to have some certainty about the space within the next 25 days and we will need an unusual type of co-operation from you to do so.
[8] GWL responded to this letter on July 20, 2006. In its response, GWL indicated that “it is important to maintain the formality with respect to the documentation surrounding [the] lease” and advised that the Landlords would require receipt of a request for an extension of the term of the Lease. GWL also stated: “Although the Landlord has several third party tenants interested in this locations, [sic] should the Landlord agree to such … extension of lease term … many amendments to the existing lease would be made … .” GWL then set out a number of proposed lease terms for the Leased Premises, including provisions for an extended lease term, a fixturing period, basic, additional and percentage rent, the permitted use of the Leased Premises and design work (the “Term Sheet”). GWL expressly indicated that these terms were non-exhaustive.
[9] Shortly thereafter, IPD proceeded to purchase SHI. The closing of at least part of that transaction took place on August 28, 2006 – before any formal written extension or renewal agreement had been entered into with the Landlords regarding the Lease.
[10] By the fall of 2006, IPD was in possession of and operating the Shopsy’s delicatessen at the Leased Premises and the Landlords were dealing with IPD, as the new owner of SHI, in its capacity as the tenant of the Leased Premises under the existing Lease. However, the parties had still not concluded any formal written extension or renewal agreement concerning the Lease.
[11] IPD maintains that by September of 2006, it had fulfilled all the agreed conditions to obtain an extension or renewal of the Lease, save only for the Landlords’ approval of IPD’s drawings or renderings for a new restaurant at the Leased Premises. IPD contends that by virtue of their dealings in June and July 2006 – including, especially, the Term Sheet – the parties entered into a binding conditional contract for the extension or renewal of the Lease in favour of SHI on terms that were certain and enforceable, save only for the Landlords’ approval of IPD’s drawings for a new restaurant, which had yet to be presented to the Landlords or their representatives.
[12] In early November 2006, approximately five months after its initial meeting with the Landlords, IPD presented its concept drawings to the Landlords. Although the drawings initially met with enthusiasm from the Landlords’ involved representatives, senior management of the Landlords subsequently rejected the design proposal depicted in the drawings. Shortly thereafter, the Landlords entered into a lease agreement with Oliver for the Leased Premises.
(2) The Litigation
[13] Litigation followed rapidly. On November 8, 2007, the Landlords brought an application seeking, among other relief, declarations that the Lease expires on December 31, 2008 and that SHI has no right to occupy the Leased Premises thereafter, and an order requiring SHI to deliver vacant possession of the Leased Premises to the Landlords on or before December 31, 2008. On January 29, 2008, the appellants also applied for various relief, including declarations that the Lease was “extended and amended” by the Landlords in favour of SHI on the terms described in the Term Sheet and that SHI is entitled to quiet enjoyment of the Leased Premises in accordance with the Lease “as extended and amended”. The relief sought by the parties in their competing applications exclusively concerned the interpretation of the Lease and the alleged contractual rights of the appellants in relation to the Leased Premises.
[14] The applications were heard together on April 22 and April 25, 2008. The application judge held that the parties did not conclude an agreement regarding the extension or renewal of the Lease and that “no new lease or lease renewal was reached”. By judgment dated May 15, 2008, she granted the relief sought by the Landlords and dismissed the appellants’ companion application.
(3) Discussion
[15] The appellants raise two main issues on appeal. First, they attack the application judge’s factual findings on the ground that she erred by making findings of fact: (i) that allegedly are not supported by, and are inconsistent with, uncontroverted evidence that the application judge failed to consider; and (ii) that turn on credibility assessments made without the requisite underlying credibility findings and the benefit of a trial. Second, the appellants submit that the application judge misapprehended the nature of their argument that the Landlords were estopped from adducing evidence that countered or contradicted the appellants’ assertion that the Landlords made representations to IPD, on which IPD relied to its detriment. I would reject these arguments for the following reasons.
[16] First, in my view, the application judge’s key factual finding that no binding extension or renewal agreement in respect of the Lease was reached by the parties is amply supported by the record.
[17] The record indicates that at the time of its initial June 1, 2006 correspondence with GWL, IPD had already proposed to acquire the Shopsy’s delicatessen at the Leased Premises. In its June 1, 2006 letter to GWL, IPD disclosed its intention to operate that Shopsy’s delicatessen for the remainder of the term of the existing Lease even if an agreement for a longer-term lease of the Leased Premises could not be concluded with the Landlords.
[18] Although IPD later sought confirmation of the business terms required by the Landlords to complete an extension or renewal of the Lease, thereby precipitating the delivery of the Term Sheet, IPD closed the transaction of purchase and sale regarding the Shopsy’s delicatessen at the Leased Premises, at least partially, without advising the Landlords of the intended closing and without a firm written extension or renewal agreement in place. It did so notwithstanding GWL’s blunt caution in the Term Sheet that it was “important to maintain the formality with respect to the documentation surrounding [the] lease” and GWL’s concurrent warning that if the Landlords agreed to an extension of the term of the Lease, “many amendments to the existing lease would be made”, only some of which were detailed in the Term Sheet.
[19] Thus, by July 20, 2006 – before the completion of IPD’s acquisition of SHI – IPD knew that the Term Sheet did not reflect all the Lease amendments required by the Landlords.
[20] That IPD knew that the provisions of the Term Sheet did not encompass all the requisite Lease amendments was confirmed by IPD on July 26, 2006 in an e-mail to GWL’s senior leasing manager in which IPD acknowledged receipt of the Term Sheet, “outlining some of the Landlord’s requirements for a new lease” (emphasis added).
[21] Then, on September 7, 2006, IPD again e-mailed GWL’s senior leasing manager, advancing an explanation for IPD’s delay in communicating with the Landlords and stating, in part:
We have … finally signed a purchase and sale agreement that requires landlord approvals for all 3 [Shopsy’s] locations. We can pick the sites we want and naturally want Front if we can come to agreeable terms for a new lease, which I am sure we can. [Emphasis added.]
[22] This e-mail thus again confirmed IPD’s understanding, as at September 7, 2006, that the parties had not yet finalized the terms of a mutually acceptable leasing arrangement for the Leased Premises. Rather, the parties continued to be engaged in negotiations.
[23] Finally, almost two months later – on October 27, 2006 – IPD sent a further e-mail to GWL’s senior leasing manager in which it said:
[O]ur purchase is still subject to a recission arrangement with Mark Weber in our favour – we feel it would be prudent to deal with major issues such as the floor costs once we know better what our long term tenancy prospects appeared to be with you. …
Hopefully we can finalize things soon … we are very anxious to show you our drawings. [Emphasis added.]
[24] These communications from IPD to the Landlords’ leasing representative belie the appellants’ claim that the Term Sheet constituted a binding conditional contract for the extension or renewal of the Lease. IPD, by its own conduct, acknowledged that no enforceable renewal or extension agreement was settled by the parties in the Term Sheet, or otherwise, prior to the presentation by IPD of its development concept drawings to the Landlords in November 2006.
[25] Second, the appellants complain that the application judge erred by making factual findings that required a trial to ground credibility assessments. However, the appellants cannot be heard to rely on conflicts in the evidence that were obvious in the materials filed in respect of the competing applications before the application judge as the basis for subsequently arguing on appeal that the matters in issue should have been determined by way of the trial of an issue or a full trial on the merits. The appellants elected to proceed with duelling applications, in the face of conflicting evidence, and were content for the application judge to decide the matters in issue based on the record before her. It is not open to the appellants to now resile from that decision.
[26] Finally, I do not accept the appellants’ contention that the application judge misapprehended the nature of their estoppel argument or otherwise misapplied the doctrine of estoppel in the circumstances of this case.
[27] Before this court, the appellants readily acknowledged that the doctrine of estoppel is not the basis for their claims against the Landlords. They maintain that they invoked estoppel “from an evidentiary perspective only”, for the purpose of precluding the Landlords from adducing evidence that countered the appellants’ claim that the Landlords represented to them that the Landlords would not deal with or entertain a leasing proposal from Oliver, instead preferring to deal with the appellants.
[28] Assuming without deciding that estoppel could operate as a matter of law in this case in the fashion posited by the appellants, the record once again undercuts the position advanced by the appellants.
[29] The appellants claim that by acquiring SHI at a time when a formal written extension or renewal of the Lease had not been entered into with the Landlords, IPD relied to its detriment on representations by the Landlords that they would not consider Oliver as a potential competing tenant.
[30] But IPD’s own correspondence with the Landlords reveals the appellants’ awareness of Oliver’s continuing interest in the Leased Premises. In an e-mail from IPD to the Landlords’ leasing manager dated August 2, 2006, IPD recounted that in a recent meeting with the leasing manager, “it came up that Peter Oliver may be interested in the Shopsy’s space as well”. As a result, IPD requested confidentiality in respect of its dealings with the Landlords.
[31] However, this communication, which post-dated the Term Sheet and pre-dated the appellants’ partial closing of the SHI acquisition, contained no request for confirmation from the Landlords or GWL that Oliver’s potential involvement as a prospective tenant was not a factor. Nor did it contain any complaint by IPD that the Landlords may be considering Oliver as a potential tenant for the Leased Premises. The Landlords’ subsequent communications with the appellants regarding Oliver post-dated the appellants’ purchase of SHI.
[32] In these circumstances, I am not persuaded that the doctrine of estoppel assists the appellants in the manner urged by them.
(4) Disposition
[33] The record reveals that there was conflicting evidence before the application judge on many aspects of the dealings between the parties. However, on the whole of the record, there was clear evidential support for the application judge’s conclusion that the parties were engaged in negotiations that did not produce an enforceable agreement to renew or extend the Lease. Based on the undisputed parts of the record, particularly IPD’s own communications with the Landlords, I agree with the application judge’s holding that no extension of the Lease and “no new lease or lease renewal” was concluded in favour of SHI.
[34] For the reasons given, I would dismiss the appeal. The respondents shall deliver their brief written submissions on the costs of this appeal to the Registrar of this court within ten days from the date of these reasons. The appellants shall deliver their brief responding costs submissions to the Registrar within ten days thereafter.
RELEASED:
“DEC 19 2008” “E.A. Cronk J.A.”
“DD” “I agree Doherty J.A.”
“I agree K. Feldman J.A.”