COURT OF APPEAL FOR ONTARIO

CITATION: 1289012 Ontario Ltd. v. 2251420 Ontario Inc. 2015 ONCA 524

DATE: 20150713

DOCKET: C59186

Strathy C.J.O., Epstein and Huscroft JJ.A.

BETWEEN

1289012 Ontario Ltd. and Ossom International Developments Inc.

Plaintiffs (Respondents)

and

2251420 Ontario Inc.

Defendant (Appellant)

AND BETWEEN

2251420 Ontario Inc., Aliasghar Hariri and Tayebe Vahidtary

Plaintiffs by Counterclaim (Appellants)

and

1289012 Ontario Ltd., Ossom International Developments Inc., Oleg Bourlatski and Aleksandr Bourlatski

Defendants to the Counterclaim (Respondents)

Pauline Bosman, for the appellants

Leo Klug, for the respondents

Heard: July 7, 2015

On appeal from the judgment of Justice Anne Mullins of the Superior Court of Justice, dated July 8, 2014.

ENDORSEMENT

[1] The appellant 2251420 Ontario Inc. (“225”) asserts the trial judge erred in finding that the Associates Lease, dated Sept. 21, 2010, between it and the respondent 1289012 Ontario Ltd. (“128”) was a valid and enforceable lease and in awarding damages for rent due under the lease. It claims that the Associates Lease was void ab initio because 128 had previously leased the service station to Imperial Oil and was collecting rent from Imperial. In a counterclaim, it sought the return of the rent it paid to 128 and damages for wrongful taking of possession.

[2] After reviewing the 10-year history of the premises, involving a succession of operators of the service station, the trial judge found that before entering into the Associates Lease, “128 regained, if it had ever truly parted with, a bona fide right to grant possession of the premises and receive rent from 225.”

[3] Throughout the material time, 128 was the head tenant of the premises, which were owned by a third party. In 2001, concurrent with its Dealer Sales Agreement with Imperial, 128 “leased” [the trial judge’s quotation marks] the premises to Imperial (the Imperial Lease) in return for a payment of 1.5 cents per litre for all fuel sold on the premises. Imperial then sub-leased or cross-leased the premises to 128 for $1.00 per year (the Sublease).

[4] There was evidence that the purpose of the lease and leaseback was to secure Imperial’s right to supply gasoline to the service station and to control the dealer’s use of the premises, that the 1.5 cent per litre “rent” paid by Imperial to 128 was simply a volume rebate, and that such arrangements were common in the industry.

[5] As the service centre business was transferred to successive companies over the years, the Sublease, Dealer Sales Agreement and related agreements were assigned to the new dealer. 128 remained the head lessor to Imperial under the Imperial Lease.

[6] These contractual arrangements changed somewhat when the business was transferred to an unrelated company in 2009. At that time, the respondents entered into a separate sublease, referred to as an Associates Lease, with the new operator as well as a form of franchise agreement, referred to as an Associates Agreement. The new operator assumed the other arrangements with Imperial, including the Sublease. The same contractual framework was used when 225 purchased the business from that operator in 2010. The upshot was that there were two “leases” of the premises: the Sublease and the Associates Lease.

[7] The essence of 225’s position is that the form and plain language of the Imperial Lease, should determine its legal effect and that 128 had no right to lease the premises because it had previously leased them to Imperial. 225 says the trial judge erred in failing to interpret the Imperial Lease and the Sublease according to their terms and without reference to extrinsic evidence.

[8] In the circumstances of this case, we disagree.

[9] The court is, of course, required to have regard to the nature of the documents and the words used by the parties to determine their contractual intent. But as the Supreme Court of Canada noted in Sattva Capital Corp v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, at para. 48, the meaning of words is determined from a number of contextual factors, including the nature of the relationship and the purpose of the agreement.

[10] The trial judge was therefore required to have regard to the factual matrix in the interpretation of the agreements: Sattva, at para. 46. In Sattva the Supreme Court also noted, at para. 47, the importance of the history of the transaction, the background, context and the market in which the parties were operating.

[11] Another interpretative principle is also pertinent. As this court observed in Salah v. Timothy’s Coffees of the World Inc., 2010 ONCA 673, 268 O.A.C. 279, at para. 16, “Where a transaction involves the execution of several documents that form parts of a larger composite whole – like a complex commercial transaction – and each agreement is entered into on the faith of the others being executed, then assistance in the interpretation of one agreement may be drawn from the related agreements.”

[12] In this case, the factual matrix included not only the Imperial Lease, the Sublease, and the Dealer Sales Agreement entered into between 128 and Imperial, but also the suite of contracts entered into by 225 when it acquired the gas station business. This set of interrelated agreements included the Associates Lease, the Associates Agreement and other agreements between the 225 and the previous operator of the gas station business, whereby 225 purchased the assets of the business and assumed various agreements with Imperial (and its successor Parkland), including the Sublease.

[13] The trial judge was entitled to find, as she did, that the expectations of 128 and 225 were reflected in the Associates Lease. She was also entitled to find, as she did, that the effect of the various agreements was that 128 had the right to lease the premises. Her conclusions were grounded in the evidence, including the evidence of a representative of Parkland, Imperial’s successor, which had no issue with 225’s tenancy and was not claiming a right to possession.

[14] In sum, the trial judge was entitled to give effect to substance over form. Although the Sublease resembles a lease in form, in substance and in context, its purpose was to give Imperial control over the use of the premises. The Sublease did not prevent 128 from leasing the premises to others, so long as the new tenant remained bound to operate the service centre and to buy fuel from Imperial or its designate.

[15] There is, moreover, no evidence that 225’s possession of the property was disturbed. In fact it occupied the property and paid rent to 128 for 17 months before running into business difficulties and defaulting. It did not raise the alleged invalidity of the Associates Lease until after it realized the business was unprofitable and shortly before this litigation was commenced.

[16] The appellants have identified no extricable error of law in the trial judge’s interpretation of the bundle of inter-related agreements made by the parties. Nor have they identified any palpable or overriding error in her assessment of the evidence or the interpretation of the agreements.

[17] For these reasons, the appeal is dismissed, with costs to the respondent fixed at $18,000, inclusive of disbursements and all applicable taxes.

“G.R. Strathy C.J.O.”

“Gloria Epstein J.A.”

“Grant Huscroft J.A.”