COURT OF APPEAL FOR ONTARIO

CITATION: 2249740 Ontario Inc. v. Morguard Elgin Ltd., 2015 ONCA 605

DATE: 20150910

DOCKET: C59998

Feldman, Simmons and Miller JJ.A.

BETWEEN

2249740 Ontario Inc.

Plaintiff (Respondent)

and

Morguard Elgin Ltd. and Morguard Corporation

Defendants (Appellants)

J. Scott Maidment and Stephen Brown-Okruhlik, for the appellants

Ronald F. Caza and Anne M. Tardif, for the respondent

Heard: August 24, 2015

On appeal from the order of Justice Marc R. Labrosse of the Superior Court of Justice, dated January 14, 2015, with reasons reported at 2015 ONSC 299.

ENDORSEMENT

Factual Background

[1] The motion judge granted summary judgment to the respondent tenant for breach of a commercial lease.

[2] In September 2010, the parties entered into a lease of an historic building in Ottawa known as Grant House to renovate and operate a restaurant. The Commencement Date for the lease and payment of rent for the ten-year term was April 1, 2011. Article 3.03 of the lease provided, in part, that

[I]f the landlord is of the opinion that it will be unable to deliver possession of all of the Leased Premises before the expiration of 6 months after the Commencement Date, (in the condition required hereby), the Landlord shall have the right to terminate this Lease upon written notice to the Tenant, whereupon neither party shall have any liability to the other…

[3] The context for the lease agreement was that Morguard intended to construct a commercial high-rise building on its property adjacent to Grant House and was seeking an anchor tenant for that project. Construction would only proceed if an anchor tenant were found. However, there was a risk that construction of the project would cause significant disruptions to the premises or business operations at Grant House, and this was reflected in various lease provisions.

[4] By February 2011, Morguard had identified a potential anchor tenant for its proposed project, while the tenant had run into a number of difficulties, both regulatory and financial. Both parties wished to postpone the Commencement Date of the lease from April 2011. They made an oral agreement to postpone for “at least a year”.

[5] They then entered into negotiations for a Lease Amendment Agreement. Morguard secured its anchor tenant in October 2011. The lease amendment negotiations continued until December 2011, when Morguard advised in writing that it was terminating those negotiations. It later took the position that it was terminating the lease pursuant to article 3.03.

[6] The motion judge granted summary judgment in favour of the tenant. He found that the parties had made an oral agreement in February 2011 to extend the Commencement Date either for one year if no anchor tenant was secured, or for three years, if one was secured by Morguard. In the motion judge’s view, this meant that once Morguard had secured an anchor tenant, the Commencement Date would be extended to 2014. He further found that there were acts of part performance which took the oral agreement outside the operation of the Statute of Frauds, R.S.O. 1990, c. S.19. He finally found that having agreed to extend the Commencement Date until 2014, Morguard’s termination under article 3.03 was in bad faith as Morguard could not know in 2011 that it would not be able to deliver possession within six months of the new 2014 Commencement Date.

Discussion

[7] With respect to the motion judge, in our view, his factual finding of the terms of the February 2011 oral agreement is not based on the evidence and must be set aside. There is evidence that the parties agreed to extend the Commencement Date for “at least a year”, but not that the extension would be one year if Morguard did not secure an anchor tenant for its high-rise project and three years if it did.

[8] The impugned finding formed the basis for the motion judge’s legal conclusions. In particular, it formed the basis of the finding of bad faith as described above. On appeal, the respondent argued that the finding of bad faith could be upheld on the basis that the motion judge found that Morguard’s motive to terminate was because it no longer wished to negotiate an amended lease agreement, which was a bad faith motive. We do not agree that the motion judge made that finding as a stand-alone basis for his conclusion that Morguard terminated the lease in bad faith.

[9] We also accept the submission of the appellants that the motion judge erred by basing his legal decision on the doctrine of part performance when that doctrine was not pleaded nor argued before him.

[10] Finally, we were advised in oral argument that the reason the motion judge did not refer to the recently-decided leading case from the Supreme Court of Canada on good faith contractual performance, Bhasin v. Hrynew, 2014 SCC 71, [2014] 3 S.C.R. 495, was that counsel decided that that case did not change the law as applicable on the facts of this case. Therefore, they did not bring the case to the motion judge’s attention. The result was that the motion judge was not able to analyze the legal issue based on the most recent articulation of the doctrine from the Supreme Court.

[11] Having found that the decision of the motion judge granting summary judgment must be set aside, the next issue on appeal is whether this court should determine the issues of fact and law or send the matter back for a new summary judgment motion.

[12] We are normally reluctant to send a matter back, given the time and expense involved. However, we are not able to decide the motion based on the record and argument to date. Neither side was able to articulate a clear and cogent analysis of the legal effect on the lease of the acts and agreements of the parties – in particular, whether the oral agreement of February, 2011 to extend the Commencement Date for “at least a year” had the effect of repudiating the lease, or whether the lease remained in effect with the April 1, 2011 Commencement Date, under article 3.03 (the portion not quoted in these reasons), and, if so, whether Morguard was entitled to use article 3.03 to terminate in December 2011. There may also be other provisions of the lease that should be referred to. Without full argument and clear positions by the parties, it would be inappropriate for the court to make findings based on its own analysis.

[13] In order to try to avoid the necessity of a fresh motion, we are prepared to entertain written submissions (maximum 5 pages) as to the proper legal result based on the finding that the parties made an oral agreement in February 2011 to extend the Commencement Date for “at least a year”.

[14] We will defer the decision regarding costs until we have had the opportunity to consider the written submissions. The appellants’ submission shall be made within 10 days of these reasons, and the respondent’s within one week thereafter.

“K. Feldman J.A.”

“Janet Simmons J.A.”

“B.W. Miller J.A.”