Court of Appeal for Ontario

Citation: Midas Realty Corporation of Canada Inc. v. Galvic Investments Limited, 2009 ONCA 84

Date: 20090128

Docket: C49054

Before: Gillese, MacFarland and LaForme JJ.A.

Between:

Midas Realty Corporation of Canada Inc.

Applicant (Respondent in Appeal)

and

Galvic Investments Limited and 618818 Ontario Inc.

Respondent: 618818 Ontario Inc. Appellant: Galvic Investments Limited

Counsel:

David Sterns, for the appellant

Scott Kugler and James Camp, for the respondent Midas Realty Corporation of Canada

W. Kaufman, for the respondent 618818 Ontario Inc.

Heard and released orally: January 26, 2009

On appeal from the judgment of Cullity J., of the Superior Court of Justice, dated May 29, 2008.

ENDORSEMENT

[1] This is an appeal from the judgment of Cullity J., dated May 29, 2008, which granted specific performance of an option to lease agreement (OLA) between Midas Realty Corporation of Canada Inc. (“Midas”) and Galvic Investments Limited (“Galvic”) following an application brought by Midas. In so doing, the application judge granted Midas possession of premises owned by Galvic in priority over a pre-existing lease between Galvic and its tenant, 618818 Ontario Inc. (“Tenant”).

[2] Galvic and Tenant are related corporations. The application judge found that, at the relevant times, Gail Rudachuk and her daughter, Victoria Rudachuk, were the sole directors and officers of Galvic and Tenant.

[3] The premises were purchased by Galvic in 1981. At that time, Midas was a lessee and had sublet the premises to a Midas franchisee. In 1985, Tenant acquired the franchise and became a subtenant of Midas. When the lease between Midas and Galvic expired in 2001, a new arrangement was negotiated among the parties. Three documents were prepared as part of this arrangement: a new franchise agreement between Midas Canada (as the franchisor) and Tenant (as the franchisee); a lease between Galvic and Tenant; and the OLA between Galvic and Midas. Tenant chose to terminate the franchise on June 28, 2007, and has not carried on business on the premises since July 2007. On receiving notice of the termination, Midas purported to exercise an option to acquire a lease of the premises, and required Galvic to execute the same, pursuant to the OLA. When Galvic refused, the application was brought.

[4] The application judge found that the three documents had been prepared as part of an arrangement. He further found that Galvic, Tenant and Gail and Victoria were acting in concert in the connected and substantially contemporaneous transactions that led to the execution of the three documents.

[5] Galvic appeals. It argues that the application judge erred in: (1) finding that Midas’s right under the OLA is superior to Tenant’s right under the pre-existing lease; (2) failing to interpret the OLA in accordance with the doctrine of contra proferentum; and, (3) finding that the premises are unique and on that basis granting specific performance.

[6] Tenant joins with Galvic. It reinforces Galvic’s first ground of appeal, stressing that the application judge erred in elevating Midas’ contractual claim over its pre-existing interest in, and right to quiet enjoyment of, the premises.

[7] In relation to the first issue, we see no palpable and overriding error in the application judge having found that Gail, Victoria, Galvic and Tenant were acting in concert in the connected, and substantially contemporaneous, transactions that led to the three agreements being executed. Further, we see no error in his finding that having induced Midas Canada to grant the franchise to Tenant by executing the OLA, Gail, Victoria and the two corporations were acting in concert to frustrate Midas’ attempt to enforce the OLA. On the record, the application judge was fully justified in making those findings of fact, in finding that the equities warranted an order requiring Galvic to perform its obligations under the OLA, and in declaring that the lease between Tenant and Galvic was terminated.

[8] In respect to the second issue, the application judge interpreted the OLA such that Galvic did not have a unilateral right to refuse to execute and deliver the lease on Midas’ request. This interpretation is consistent with the fundamental principle that the proper interpretation of a contract is one which promotes the true intent of the parties at the time of entry into the contract. The application judge’s finding that the purpose of the OLA was to ensure the continued presence of Midas on the premises is entirely consistent with the recitals contained in the OLA. Having interpreted the language of the provisions of the OLA by reference to the purposes of that agreement, as disclosed in the recitals, there was no need for the application judge to resort to the principle of contra proferentum.

[9] We do not accept that the application judge erred as suggested in the third ground of appeal. Contrary to Galvic’s submission, on the record, the application judge was entitled to find that the premises had the requisite uniqueness to justify an order for specific performance. In this regard, it is telling that the franchise agreement itself reserves to Midas the right to select the site, and that the franchisee is granted the right to operate a Midas shop only at the designated location as selected by Midas. Although the application judge did not refer expressly in his reasons to the requirement that there be a fair, real and substantial justification for substantial performance, this standard is implicit in his reasons. His reasons also make it clear that the standard was satisfied.

[10] In its factum, Galvic also impugned the application judge for not weighing the benefit versus the burden of specific performance on the basis of the parties. We do not accept that this complaint is well-founded as there was no evidence on the record regarding the effect that specific performance would have on Galvic, except for the fact that Tenant’s lease would come to an end. As Tenant had ceased carrying on business on the premises before Midas sought to exercise the option to acquire a lease of the premises, it is hard to see what prejudice it would suffer. In any event, we agree with the application judge that the equities in this case favour Midas, not Galvic.

[11] In short, we find no error in the reasons of the application judge. On the contrary, we endorse them. The application judge articulated and applied the correct legal principles and his detailed findings are fully justified on the record.

[12] Midas asked this court to vary the date on which the lease is to begin. Counsel for Midas properly conceded that this matter had been raised for the first time on appeal. We decline to decide the matter for that reason – it is an issue which needs to be properly argued and decided in the context of an appropriate evidentiary record.

[13] For the reasons given, the appeal is dismissed. In the view of the court, there is no basis to award costs other than on a partial indemnity scale. Costs of the appeal to the respondent are fixed at $15,000, all inclusive.

“E.E. Gillese J.A.”

“J. MacFarland J.A.”

“H.S. LaForme J.A.”