COURT OF APPEAL FOR ONTARIO

2015 ONCA 86

DATE: 20150206

DOCKET: C59083

Hoy A.C.J.O., van Rensburg and Brown JJ.A.

BETWEEN

1465152 Ontario Limited

Respondent

and

Amexon Development Inc.

Appellant

Hillel David, for the appellant

Catherine Francis and Mark Freake, for the respondent

Heard: January 21, 2015

On appeal from the judgment of Justice Frederick L. Myers of the Superior Court of Justice, dated June 27, 2014.

Brown J.A.:

Overview

[1] Amexon Development Inc., the Landlord of a building located at 1200 Sheppard Avenue East, Toronto, appeals from the judgment of Justice Frederick L. Myers dated June 27, 2014 (the “Judgment”), in which the application judge declared that the February 28, 2014 Notice to Vacate issued by the Landlord to the respondent Tenant, 1465152 Ontario Limited, was void. The application judge also enjoined the Landlord from re-entering the leased premises and from otherwise failing to fulfill its obligations to supply the leased premises with the services and utilities required by the lease.

[2] For the reasons set out below, I would dismiss the appeal on the basis that the application judge did not err in his interpretation of the lease for the premises or in exercising his discretion to grant a permanent injunction.

Facts

[3] By lease dated April 1, 2000 (the “2000 Lease”) the Tenant leased premises at the building for use by the Rubenstein, Siegel law firm. The term of the 2000 Lease was renewed for five years in 2007. Pursuant to an October 12, 2010 Lease Expansion and Extension Agreement (the “Extension Agreement”), the Landlord and Tenant agreed to a further extension of the term until March 31, 2016. The Extension Agreement provided the Tenant with an option to renew for a further five-year term “based on mutually agreed terms and conditions, based on fair market rents.” All other terms and conditions of the 2000 Lease remained in full force and effect.

[4] Sometime after entering into the Extension Agreement, the Landlord decided it wanted to demolish the building and redevelop the property. The Landlord was able to negotiate lease termination agreements with all the tenants in the building except for the respondent Tenant. Efforts between the parties to negotiate a lease termination agreement spanned several months, but proved unsuccessful.

[5] On February 28, 2014, the Landlord delivered to the Tenant a Notice to Vacate which read as follows:

This is to confirm that services to and in the Building will be turned off as at 12:01 a.m. on September 1, 2014 and as at and from that time you will not have pedestrian or vehicular access to the Building.

Please remove all fixtures and leasehold improvements and fully vacate the Premises by August 31, 2014. Any trade fixtures not removed from the Premises by such date will be disposed of by the Landlord as waste.

Demolition of the Building will occur immediately thereafter.

[6] On April 1, 2014, the Tenant commenced an application seeking a variety of declaratory relief, including a declaration that the Notice to Vacate was void, as well as a permanent injunction restraining the Landlord from terminating the lease and trespassing onto the leased premises.

Grounds of appeal

[7] The Landlord advances two main grounds of appeal:

i. The application judge erred in his interpretation of s. 13.07 of the 2000 Lease which, the Landlord contended, limited the remedy the Tenant could seek for any breach of the 2000 Lease to damages; and

ii. The application judge erred in granting a permanent injunction because the leased premises were not unique and the Landlord had offered the Tenant equivalent alternative premises.

The interpretation of s. 13.07 of the 2000 Lease

[8] Section 13.07 of the 2000 Lease is entitled “Remedies Generally” and provides, in part, as follows:

Whenever the Tenant seeks a remedy in order to enforce the observance or performance of one of the terms, covenants and conditions contained in this Lease on the part of the Landlord to be observed or performed, the Tenant’s only remedy shall be for such damages as the Tenant shall be able to prove in a court of competent jurisdiction that it has suffered as a result of a breach (if established) by the Landlord in the observance and performance of any of the terms, covenants and conditions contained in this Lease on the part of the Landlord to be observed or performed.

[9] The Landlord submits that s. 13.07 limits the remedy available to the Tenant for the Landlord’s breach of any of its obligations under the Lease to a claim for compensatory damages. The application judge rejected that submission holding:

But this is not just any breach. The Landlord is walking away from its fundamental promise. This is not a balanced win-win but an effort by the Landlord to make more money by denying or rescinding its bargain. Allowing landlords to evict tenants because something better has come along is fraught with a risk of abuse. If the law of leases is to change, it will be more incremental, with nuanced protections for both parties.

The limitation of remedies s. 13.07 may be seen to support the notion that the transaction as contemplated was always economic at its core and this would support an efficient breach concept. But the parties cannot oust the jurisdiction of a court of equity. Moreover, I do not read s. 13.07 as applying when the Landlord commits not just a breach of covenant, but a complete repudiation of its grant and consideration [and a tort (trespass) to which the clause does not apply].

[10] In Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, 373 D.L.R. (4th) 393, the Supreme Court of Canada held, at paras. 50 to 55, that the interpretation of a contract involves an issue of mixed fact and law on which an appellate court should defer to the application judge, except where it is possible to identify an extricable question of law, such as the application of an incorrect principle, the failure to consider a required element of a legal test, or the failure to consider a relevant factor.

[11] The Landlord characterizes s. 13.07 as a type of exclusionary clause which limits the remedies available to the Tenant upon any breach by the Landlord. The Landlord submits that the application judge applied an incorrect principle by failing to follow the approach to contractual interpretation described by the Supreme Court of Canada in Tercon Contractors Ltd. v. British Columbia (Minister of Transportation & Highways), 2010 SCC 4, [2010] 1 S.C.R. 69. At paras. 121 to 123 in that decision the Supreme Court of Canada set out the inquiries a court must make when a party seeks to escape the effect of an exclusion clause or other contractual term to which it had previously agreed. The first inquiry is to ascertain whether “as a matter of interpretation the exclusion clause even applies to the circumstances established in the evidence” (emphasis in original). As stated by Binnie J., at para. 122 of Tercon Contractors:

This will depend on the Court’s assessment of the intention of the parties as expressed in the contract. If the exclusion clause does not apply, there is obviously no need to proceed further with this analysis.

[12] In my view, the application judge followed the principles in Tercon Contractors by first inquiring whether s. 13.07 applied to the Notice to Vacate issued by the Landlord. He concluded that it did not because the Landlord had committed “a complete repudiation of its grant and consideration [and a tort (trespass) to which the clause does not apply].” That conclusion was a reasonable one and merits deference for two reasons.

[13] First, at the hearing of the appeal the Landlord acknowledged that it did not enjoy any right under the Lease to issue the Notice to Vacate or to insist the Tenant vacate the leased premises so that the Landlord could demolish the building. Sections 13.01 and 13.05 of the Lease specified the circumstances in which the Landlord could re-enter the leased premises. The right of the Landlord to do so under either section required some failure by the Tenant to comply with the Lease. In the present case, the Landlord’s February 28, 2014 Notice to Vacate did not allege that the Tenant had breached any provision of the Lease, nor did it identify any specific provision of the Lease under which the Landlord was purporting to re-enter the leased premises.

[14] To accept the Landlord’s interpretation of s. 13.07 of the Lease would render ss. 13.01 and 13.05 meaningless. The Landlord could ignore those contractual provisions and re-enter the leased premises arbitrarily and without any contractual justification. The Tenant would not be able to restrain the unlawful trespass and could only sue for damages.

[15] In oral argument Landlord’s counsel acknowledged that the Landlord would not be entitled to invoke s. 13.07 if it was acting arbitrarily or for an improper purpose. The Landlord contended that it had not acted arbitrarily because, in issuing the Notice to Vacate, it was pursuing the legitimate business objective of re-developing the property. The application judge considered and rejected that submission. The application judge found, in essence, that the Landlord was acting arbitrarily, in the sense of without lawful authority or purpose, when he held that the Landlord was trying “to make more money by denying or rescinding its bargain”, had committed “a complete repudiation of its grant and consideration [and a tort (trespass) to which the clause does not apply]”, and had engaged in “tortious misconduct”.

[16] A commercially unreasonable interpretation of s. 13.07 would result if the Landlord could act without lawful authority to bring the Lease to an end and re-occupy the premises, and then rely on the disclaimed Lease to prevent the Tenant from restraining the Landlord’s unlawful conduct. Section 13.07 applies “[w]henever the tenant seeks a remedy in order to enforce the observance or performance of one of the terms, covenants and conditions contained in this Lease on the part of the Landlord”. Much clearer language would be required in order to restrict the remedies available against the Landlord when it acted arbitrarily and without any basis in the rights conferred on it under the Lease.

[17] Second, as his endorsement discloses, the application judge interpreted s. 13.07 in the context of the entire Lease. He found that the Lease did not contain a demolition clause. It was open to the Landlord to negotiate the inclusion of a demolition clause in the Lease, but it did not do so.

[18] In sum, I see no basis upon which to interfere with the application judge’s interpretation of s. 13.07 of the Lease, his resulting declaration that the February 28, 2014 Notice to Vacate was void, and his conclusion that the Tenant was not contractually limited to a remedy in damages.

The permanent injunction

[19] The Landlord also appeals para. 2 of the Judgment in which the application judge ordered that the Landlord was “enjoined from re-entering the Leased Premises and otherwise failing to fulfill its obligations to supply the Leased Premises with services and utilities and all other goods and services required by the Lease.”

[20] In his endorsement the application judge gave the following reasons for granting the permanent injunction:

An injunction will only be granted for breach of contract where damages are an inadequate remedy. Pointe East Windsor 2014 ONCA 467. Here damages are inadequate because the applicability and quantum of punitive damages and restitutionary damages is so unclear. I cannot say today that the Tenant will be adequately compensated by damages. Moreover, there is still a property law element to a lease despite long-standing recognition as commercial contracts. Injunctions remain a powerful arrow to preserve property rights and to restrain tortious misconduct.

[21] The Landlord submits that the application judge erred in granting a permanent injunction for several reasons: (i) an award of damages would adequately compensate the Tenant because the leased premises were not unique or special in any way; (ii) the Tenant was seeking an injunction for an improper purpose, namely to enhance its bargaining position with the Landlord; and, (iii) an injunction was a disproportionate remedy in the circumstances. I do not accept the Landlord’s submissions.

[22] First, the Landlord contends that in Pointe East Windsor Limited v. Windsor (City), 2014 ONCA 467, 374 D.L.R. (4th) 380, at para. 17, this court held that equitable relief, such as a permanent injunction, is only available where damages are an inadequate remedy. The Landlord submits that the leased premises are not unique, so an award of compensatory damages to the Tenant would serve as an adequate remedy. However, in Pointe East Windsor Limited, the issue of remedy arose in the context of an action for breach of contract, not where the holder of an interest in property, such as the Tenant, was alleging a wrongful interference with a proprietary interest.

[23] As the law in Ontario currently stands, different considerations apply in the latter circumstance, as was explained in Robert J. Sharpe, Injunctions and Specific Performance, loose-leaf (consulted on 30 January 2015), (Toronto: Canada Law Book, 2014), at 4.10 and 4.20:

Where the plaintiff complains of an interference with property rights, injunctive relief is strongly favored. This is especially so in the case of direct infringement in the nature of trespass.

The reason for the primacy of injunctive relief is that an injunction more accurately reflects the substantive definition of property than does a damages award. It is the very essence of the concept of property that the owner should not be deprived without consent. An injunction brings to bear coercive powers to vindicate that right. Compensatory damages for a continuous and wrongful interference with a property interest offers only limited protection in that the plaintiff is, in effect, deprived of property without consent at an objectively determined price. Special justification is required for damages rather than an injunction if the principle of autonomous control over property is to be preserved. A damages award rather than an injunction permits the defendant to carry on interfering with the plaintiff’s property. [Footnotes omitted.]

[24] The Landlord relies on the decision of the British Columbia Court of Appeal in Evergreen Building Ltd. v. IBI Leaseholds Ltd., 2005 BCCA 583, 50 B.C.L.R. (4th) 250, leave to appeal to S.C.C. granted, [2006] S.C.C.A. No. 43,[^1] in support of its position that the application judge should not have granted a permanent injunction. That case also involved an argument by a landlord that it should be permitted to re-enter leased premises in order to demolish a building for redevelopment even though the lease did not contain a demolition clause and the tenant had not breached the lease. The British Columbia Court of Appeal, at para. 31 of its reasons, held that the chambers judge had erred in granting a permanent injunction because he had treated the remedies related to a lease and a contract as “water-tight compartments”, leading him to ignore the issue of whether damages were an adequate remedy in the circumstances. The British Columbia Court of Appeal re-instated the interim injunction restraining the landlord from breaching the covenant of quiet enjoyment and remitted the issue of the permanent injunction back to the British Columbia Supreme Court for consideration of the equities between the parties.

[25] In the present case, the application judge turned his mind to the adequacy of an award of damages and then went on to observe, correctly, that “[i]njunctions remain a powerful arrow to preserve property rights and to restrain tortious misconduct.” The Landlord sought to trespass by seeking to enter the leased premises without any authority, terminate the Lease and demolish the leased premises. Under those circumstances it fell within the discretion of the application judge to restrain the Landlord from committing such a trespass, and I see no error in his exercise of that discretion.

[26] Second, the Landlord argues that the Tenant was seeking an injunction for an improper purpose, namely to enhance its bargaining position with the Landlord. Such a motivation, according to the Landlord, operated as a reason to deny granting an injunction. Certainly some courts have refused to grant an injunction where they have found that the request for injunctive relief was being used to force a hard bargain rather than protecting the actual enjoyment of bona fide property rights: Michael Santarsieri Inc. v. Unicity Mall Ltd. (1999), 1999 CanLII 5082 (MB CA), 181 D.L.R. (4th) 136 (Man. C.A.), at para. 25 and Denovan v. Lee (1989), 1989 CanLII 5231 (BC CA), 65 D.L.R. (4th) 103 (B.C.C.A.), at p. 106. In the present case, however, the application judge made no such finding of improper purpose on the part of the Tenant and, by contrast, found that the Landlord had engaged in tortious misconduct.

[27] Finally, the Landlord submits that the permanent injunction constituted a disproportionate remedy in the circumstances, arguing that it was unreasonable to permit the Tenant to continue to occupy premises which amounted to less than three per cent of the building’s total rental area when all other tenants had vacated the building. I would not accept that submission for two reasons. First, as pointed out in Injunctions and Specific Performance, at 4.590:

Where there is a direct interference with the plaintiff’s property constituting a trespass, the rule favoring injunctive relief is even stronger than in the nuisance cases. Especially where the trespass is deliberate and continuing, it is ordinarily difficult to justify the denial of a prohibitive injunction. A damages award in such circumstances amounts to an expropriation without legislative sanction … In trespass, there has been less concern than in nuisance with the problem of “extortion”. Even if the plaintiff is merely holding out for the highest possible price, and suffers no out-of-pocket loss because of the trespass, the courts have awarded injunctions. Such orders may be said to vindicate the plaintiff’s right to exploit the property for whatever it is worth to the defendant and prevent the defendant from circumventing the bargaining process. [Footnotes omitted.]

[28] In addition, the application judge balanced the parties’ respective interests and tailored the scope of the injunction to that which was necessary to restrain the specific unlawful conduct of the Landlord – i.e. its intention to trespass onto the leased premises pursuant to the Notice to Vacate in order to terminate the tenancy. His endorsement clearly states that the injunction would not protect the Tenant from the consequences of future breaches or future application of the Lease, nor did it address the issue of the right of the Tenant to renew the Lease upon the expiry of its current term on March 31, 2016.

Disposition

[29] For those reasons, I would dismiss the appeal. The parties agreed that in the event the appeal did not succeed, the Landlord would pay the Tenant costs, all-in, of $25,000, and I so order.

Released: February 6, 2015 (AH)

“David Brown J.A.”

“I agree Alexandra Hoy A.C.J.O.”

“I agree K. van Rensburg J.A.”

[^1]: The appeal was subsequently abandoned. See Supreme Court of Canada, IBI Leaseholds Ltd. v. Evergreen Building Ltd. (December 3, 2012), online: http://www.scc-csc.gc.ca/case-dossier/info/dock-regi-eng.aspx?cas=31286.