CITATION: D.G. Sports Inc. v. WWK Sportsdome Inc., 2010 ONCA 234
DATE: 20100401
DOCKET: C50949
COURT OF APPEAL FOR ONTARIO
Goudge, MacPherson and MacFarland JJ.A.
BETWEEN
D.G. Sports Inc. and David Gee
Plaintiffs/Defendants by Counterclaim (Respondents)
and
WWK Sportsdome Inc., Wild Water Kingdom Ltd. and Edward Siu Chong
Defendants/Plaintiffs by Counterclaim (Appellants)
Brian N. Radnoff, for the appellants
Ernest D. Coetzee and Alexander X.S. Sabharwal, for the respondents
Heard: March 9, 2010
On appeal from the judgment of Justice David G. Price of the Superior Court of Justice dated July 29, 2009, with reasons reported at 2009 ONSC 55286.
MacPherson J.A.:
A. INTRODUCTION
[1] The appellants appeal from the order of Price J. dated July 29, 2009, granting partial summary judgment to the respondents for the return of a $250,000 deposit on a failed commercial lease.
[2] The appellants contend that the motion judge erred in two important respects. First, the appellants submit that partial summary judgment should not have been granted because the crucial lease provision in issue – the termination clause – had more than one meaning. The interpretation of the clause would require the assessment of conflicting extrinsic evidence, necessitating a trial. Second, the appellants argue that partial summary judgment should not have been granted because the portion of the claim on which partial summary judgment was sought was inextricably linked to, and not severable from, all of the liability issues in the main action and the counterclaim.
B. FACTS
(1) The parties and events
[3] Wild Water Kingdom Ltd. (“Wild Water”) operates a recreational facility in the summer months consisting primarily of a water park. In early 2007, Wild Water decided to expand its operations into the winter by constructing a sports dome facility that would cover three sports fields and be used primarily for soccer.
[4] WWK Sportsdome Inc. (“WWK”) developed and was the lessor of the sports dome facility. Edward Chong (“Chong”) is the principal of both Wild Water and WWK.
[5] D.G. Sports Inc. (“D.G. Sports”) is an owner and organizer of recreational indoor soccer leagues for children and adults. In order to operate these leagues, D.G. Sports rents indoor soccer fields from third parties.
[6] David Gee (“Gee”) is the principal of D.G. Sports. On or about March 12, 2007, Gee delivered to Chong a letter of intent concerning a proposed lease for the sports dome facility that WWK planned to construct. The letter of intent was accepted by Chong, on behalf of WWK, on May 23, 2007.
[7] After acceptance of the letter of intent, there were considerable negotiations. The parties executed the lease and an addendum on September 11, 2007. WWK was the lessor and D.G. Sports and Gee were the lessees. Wild Water and Chong were guarantors with respect to a WWK obligation, under the addendum to the lease, to repay certain funds to D.G. Sports and Gee in the event that they were entitled to terminate the lease.
[8] The lease agreement had a 4.5 year term from October 1, 2007 to April 30, 2012. The guaranteed rental dates for each year were October 1 to April 30.
[9] Lease payments totalled over $3.5 million for the term of the lease. Prior to October 1, 2007, the lessees made four deposit payments totalling $250,000. On October 1, 2007, a rent payment of $149,780 was due.
[10] The lease contained termination provisions in favour of both the lessor and the lessees. The lessees’ provision was s.3(a)(ii), which provided:
- Termination.
(a) This Agreement may be terminated:
(ii) at the option of Lessee, (A) with immediate effect in the event that completion of the Air-Supported Structure is delayed beyond September 30, 2007, and (B) in the event that Lessor shall fail to perform any other material obligation of Lessor under this Agreement, and such non-performance shall continue uncured ten (10) days after written notice thereof to Lessor;
[11] As of October 1, 2007, the sports dome facility could not be used for soccer matches. There was no heat or water in the facility. It also lacked the fire access route and fire hydrants necessary for the facility to be lawful under the Building Code.
[12] On October 1, 2007, Gee received a telephone call from Chong’s representative, Mark Anthony, demanding that the lessees make the rent payment of $149,780 due that day.
[13] The next day, October 2, 2007, Chong sent a letter to Gee, warning the lessees that if they did not pay the rent instalment of $149,780 by October 8, 2007, “the landlord reserves its right to terminate the Lease without prejudice to all other remedies available to it, including its right to require the immediate payment of all rent for the remainder of the Term.”
[14] Later that day, Gee sent a Notice of Termination to Chong purporting to terminate the lease pursuant to s. 3(a)(ii)(A) of the lease on the basis that the “completion of the Air-Supported Structure has been delayed beyond September 30, 2007.”
[15] The various defects in, and relating to, the sports dome facility were corrected soon thereafter, and the City of Brampton issued an occupancy permit for the facility on October 17, 2007.
[16] On November 5, 2007, the respondents commenced an action. They sought a declaration that WWK had breached the lease, and claimed damages for the $250,000 already paid to WWK and for lost profits. The respondents alleged that the appellants breached the lease because the “Air-Supported Structure” referred to in s. 3(a)(ii)(A) was not completed by September 30, 2007.
[17] On December 5, 2007, the appellants defended the respondents’ claim and WWK brought a counterclaim. The counterclaim claimed damages from the respondents for breach of the lease. The appellants alleged that the respondents were not entitled to terminate the lease because the “Air-Supported Structure” was completed as of September 30, 2007.
[18] The respondents brought a motion for summary judgment, seeking only damages of $250,000, this being “the repayment of all deposit and pre-paid rental instalments paid to [September 30, 2007] pursuant to section 4(b) of the Lease Agreement”.
[19] The motion judge granted the motion, with supporting reasons delivered on July 29, 2009.
[20] The appellants appeal the motion judge’s Order.
C. ISSUES
[21] The appellant raises two issues on the appeal:
(1) Did the motion judge err in granting summary judgment based on an incorrect application of core principles of contract law?
(2) Did the motion judge err in granting summary judgment in circumstances where the issue before him was not severable from the remaining liability issues in the main action and counterclaim?
D. ANALYSIS
(1) Contract interpretation
[22] The appellants contend that the motion judge erred by basing summary judgment on a contractual interpretation that could only be made by resorting to conflicting extrinsic evidence. In such a context, assert the appellants, summary judgment is inappropriate: see Hi-tech Group Inc. v. Sears Canada Inc. (2001), 2001 ONCA 24049, 52 O.R. (3d) 97 (C.A.), at para. 26. In this case, the pivotal words “Air-Supported Structure” in s. 3(a)(ii)(A) of the lease were not defined in the lease. Since the parties disagreed on the proper definition, it follows that a trial was necessary to resolve the disagreement.
[23] I do not accept this submission. The motion judge reasoned as follows:
I must determine if the lease in the present case is clear and unambiguous. In making this determination, I have reminded myself that “effect must, if possible, be given to every word and every clause in an agreement”. If a provision in the lease is reasonably susceptible of more than one meaning, I would be compelled to find that it is ambiguous.
It is my opinion that the meaning of “Air-Supported Structure” must be derived from its context of the D.G. Sports’ lease of a facility for the known purpose of renting it to third parties for the soccer season beginning October 1st. I find that D.G. Sports was unable to use the facility for that purpose at the beginning of the soccer season on October 1, 2007 because it lacked heat and water or any lawful access to or from it for fire safety. It would make no sense for me to find, in those circumstances, that D.G. Sports had no right to terminate because the membrane enclosing the fields was inflated.
If there is an ambiguity in a contract, evidence of the circumstances surrounding the making of it is admissible. If evidence of the surrounding circumstances in the present case were necessary in order to interpret the lease, I would be compelled to conclude that “the process cannot be fully carried out until findings of fact have been made on evidence”. Once there is a necessity to make findings on evidence that are open to different interpretations, inferences and different views on what weight should be given to them, I would have to conclude that there is a genuine issue for trial and not grant summary judgment.
In the present case, if Mr. Gee’s evidence had been that the parties used the terms “Air-Supported Structure” and “sports dome” interchangeably but Mr. Chong’s evidence had been that the parties ascribed very different meanings to the terms and this difference of evidence were material to the interpretation of the lease and to whether the “Air-Supported Structure” was completed by the required date, then I would dismiss the motion and leave these issues to be decided by a trial judge. That is not the case here.
It is my opinion that the interpretation of the terms “Air-Supported Structure” can be determined from the wording of the lease itself. That interpretation is overwhelmingly supported by the circumstances attested to by the witnesses, including the parties themselves and the City’s representative, who was responsible for deciding whether the facility was fit to be used for intended purpose.
[24] In my view, this reasoning is sound. First, it focusses on the words of the lease. Second, it properly links the words of the lease with the known purpose of the lease – to establish a facility for indoor soccer usable at the start of the soccer season: October 1, 2007. Third, there was no conflicting extrinsic evidence about either the purpose of the lease or the interchangeability of the terms “Air-Supported Structure” and “sports dome”. The consistent evidence of the representatives of the appellants, respondents and City of Brampton was that these were interchangeable terms.
[25] The appellants’ second submission under the rubric of contract interpretation is that, even if the motion judge was entitled to interpret the term “Air-Supported Structure” on a motion for summary judgment, he erred in his interpretation of the term. Specifically, the appellants contend that the trial judge’s interpretation of this term was inconsistent with the negotiations leading up to the lease, ignores the alternative remedy in s. 3(a)(ii)(B) of the lease, wrongly treats the non-completion of the “Air-Supported Structure” as a fundamental breach of the contract, and is inconsistent with good business sense.
[26] I do not agree with this submission. In my view, the motion judge correctly focussed on the wording of the crucial provision in the lease and on the central contextual factor related to it, namely, the creation of a facility capable of being used by indoor soccer leagues as of October 1, 2007.
[27] I want to say a word specifically about the appellants’ ‘good business sense’ argument, which is that s. 3(a)(ii)(A) of the lease must be interpreted in the context of a lease with a duration of 4.5 years and involving payment obligations of over $3.5 million. In that context, say the appellants, a two-week delay in having the facility ready for use should not permit termination of the lease.
[28] I disagree. In my view, it is instructive to note what actually happened on October 1 and 2, 2007.
[29] Gee’s description of the events of October is contained in his affidavit dated December 22, 2008:
On or about October 1, 2007, I received a phone call from Mr. Anthony, on behalf of WWK, who demanded that I pay the 5th Installment of the rent payment for Year 1 of the lease term as per section 4(b) of the Lease Agreement. I was concerned because the Sports Dome was not completed and I had no indication from Mr. Anthony, WWK or anyone else as to when it would in fact be completed. Further, when I asked Mr. Anthony whether I could speak to Dr. Chong, he said that Dr. Chong was not available to speak with me. Mr. Anthony said that Dr. Chong was too busy. Later on in the afternoon of October 1st, I actually attended at Dr. Chong’s office in order to attempt to see him. I waited approximately twenty minutes and then left the office without seeing him.
[30] Chong’s description of the same events is found in his affidavit dated January 16, 2009:
I am advised by Mr. Anthony and do verily believe that on October 1, 2007, Mr. Gee and Mr. Anthony had a telephone conversation during which Mr. Gee advised Mr. Anthony that the Plaintiffs would be withholding the payment of the 5th rent installment in the amount of $149,780.00 which was due on October 1, 2007, pursuant to the Lease. Mr. Gee advised Mr. Anthony that he had the money but that he would not release it unless he could meet with me personally to discuss his concerns and to further negotiate the terms of the Lease. I advised Mr. Anthony that Mr. Gee was not entitled to impose any preconditions to withhold rent.
[31] The next day, October 2, 2007, Chong sent the letter demanding payment of the $149,780 rent instalment and threatening termination of the lease if payment was not made. Later the same day, Gee purported to terminate the lease pursuant to s. 3(a)(ii)(A).
[32] I agree with the appellants that the duration and value of the lease are important contextual facts. However, under the rubric of ‘good business sense’, they support the respondents’ decision to terminate. The reality is that on October 1, 2007: (1) the facility was not useable; (2) this was the first day of the first year of a 4.5 year plan to rent the facility to indoor soccer leagues; (3) the landlord was telling the lessees absolutely nothing about when the facility would be useable (Chong’s affidavit does not contest this point); (4) the landlord was demanding immediate payment of a huge rent instalment ($149,780) for a facility where not one soccer match could take place; and (5) the landlord was threatening legal action, including termination, if payment was not forthcoming. In my view, against the backdrop of this constellation of contextual facts, it was Gee who displayed ‘good business sense’ by invoking the termination clause available to him in the lease. Or, as expressed vividly by the motion judge: “It would make no sense for me to find, in those circumstances, that D.G. Sports had no right to terminate because the membrane enclosing the fields was inflated.”
(2) Partial summary judgment and severability
[33] The appellants contend that the motion judge erred in granting partial summary judgment in circumstances where the issue before him was not severable from the remaining liability issues in the main action and counterclaim, both of which must go to trial.
[34] The issue determined by the motion judge was that the “Air-Supported Structure” was not completed by September 30, 2007, as required by the lease and, therefore, the respondents were entitled to terminate the lease pursuant to s. 3(a)(ii)(A). The appellants submit that this is the crucial, albeit not the only, issue in both the respondents’ action and the appellants’ counterclaim and that its resolution on a motion for summary judgment improperly precludes consideration of the issue at trial.
[35] Specifically, the appellants say that the balance of the respondents’ claim for lost profits under the lease will require the trial court to determine whether WWK breached the lease. Similarly, the liability determination on WWK’s counterclaim against the respondents will require a determination of whether it was the respondents who breached the lease. Given that this will require the trial court to determine whether the “Air-Supported Structure” was completed by September 30, 2007, the appellants argue that the motion judge improperly severed these issues by resolving them on the motion for summary judgment.
[36] I do not accept this submission. Rule 20 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, specifically authorizes partial summary judgment:
20.01(1) A plaintiff may … move with supporting affidavit material or other evidence for summary judgment on all or part of the claim in the statement of claim. [Emphasis added.]
[37] In Ford Motor Co. of Canada Ltd. v. Ontario Municipal Employees Retirement Board (1997), 1997 ONCA 1302, 36 O.R. (3d) 384 (C.A.), Osborne J.A. identified three categories of cases in which a motion for partial summary judgment is appropriate. He described the first category in this fashion at pp. 394-95:
The cases in which summary judgment has been granted for “part of” a claim seem to me to fall into three groups:
(a) actions where the evidence establishes that there is no genuine issue for trial in respect of a discrete claim. These partial summary judgment cases require no further comment except to say the result of summary judgment for “part of” a claim is consistent with the purpose of Rule 20; the partial summary judgment removes a discrete issue from the issues to be tried and thus shortens the trial. This is consistent with “procedural justice” concerns referred to by Morden A.C.J.O. in Irving Ungerman and with the purpose of Rule 20 as referred to in Jockey Club;
[38] In my view, this is precisely the purpose and effect of the successful motion for summary judgment in this case. The respondents brought a motion for summary judgment on a discrete issue – partial damages (i.e. the return of deposit monies) that were clearly identifiable under the terms of the lease in an action with a sole liability issue that was clearly engaged by the respondents’ motion. The respondents led evidence in support of the motion and the appellants responded. The motion judge determined that the appellants’ response did not raise a genuine issue for trial with respect to the sole liability issue. In my view, the motion judge’s determination of this issue was correct.
[39] It is true, as the respondents assert, that the effect of granting partial judgment is that no liability issue is left for trial. The respondents’ action would proceed on the issue of damages, and the appellants’ counterclaim would be moot. However, these are the natural and permissible consequences of a motion for summary judgment properly brought and granted.
[40] Finally, the appellants assert that the motion judge’s award of costs of $63,000 to the respondents for the summary judgment motion was unreasonable. On the record before us, there is no basis for interfering with the costs award.
E. DISPOSITION
[41] I would dismiss the appeal. The respondents are entitled to their costs of the appeal which I would fix at $20,000 inclusive of disbursements and GST.
RELEASED: April 1, 2010 (“S.T.G.”)
“J.C. MacPherson J.A.”
“I agree S.T. Goudge J.A.”
“I agree J. MacFarland J.A.”