COURT OF APPEAL FOR ONTARIO

CITATION: Dragona Carpet Supplies Ltd. v. Earl O’Neil Electric Supply Limited, 2016 ONCA 783

DATE: 20161026

DOCKET: C61719

Gillese, Pepall and Roberts JJ.A.

BETWEEN

Dragona Carpet Supplies Ltd.

Applicant

(Respondent in appeal)

and

Earl O’Neil Electric Supply Limited, 1309485 Ontario Inc., Lloyd Newton, Jeffrey Newton and Brenda Berger

Respondents

(Appellant)

William V. Reid, for the appellant

Reeva Finkel, for the respondent

Heard: October 21, 2016

On appeal from the order of Justice Kenneth G. Hood of the Superior Court of Justice, dated January 5, 2016, with reasons reported at 2016 ONSC 162.

ENDORSEMENT

[1] The appellant appeals from the application judge’s order, granting the respondent relief from forfeiture of its commercial sublease with the appellant. The appellant also seeks to file fresh evidence on appeal.

[2] The appellant is the tenant under a head lease of commercial premises at 85 Progress Avenue in Toronto, a portion of which it sublet to the respondent pursuant to a sublease dated August 3, 2010. The term of the respondent’s sublease ends in June 2018. Although served with the application, the landlords under the head lease have taken no position in these proceedings.

[3] The appellant served two notices of termination of the sublease for alleged breaches, other than non-payment of rent, dated respectively September 23 and November 25, 2015. There was no dispute that the respondent was current in its rent payments to the appellant.

[4] The appellant’s first notice of termination alleged that the respondent was in breach of the sublease because its principals and employees had been charged with criminal activity and the police had executed a search warrant as part of an investigation into stolen hardwood flooring products, creating a nuisance; and because the respondent had stored numerous used vehicles at the premises. Contrary to the head lease, which allowed ten days to remedy any breach, and contrary to s. 19(2) of the Commercial Tenancies Act, R.S.O. 1990, c. L.7, which gives a reasonable time to remedy any breach, other than non-payment of rent, the notice gave no time to remedy the alleged breaches.

[5] The second notice alleged that the respondent had breached art. 12.07(e) of the head lease by allowing Dragona Flooring (a company owned by the sons of the respondent’s owners) to store hardwood flooring in the respondent’s subleased space. Dragona Flooring maintained premises at 12 Progress Avenue and required storage space at 85 Progress Avenue. This notice gave the respondent ten days to remedy the breach. Further, it alleged that the respondent had breached art. 6.01 of the head lease by acquiescing to this use, which the appellant maintained was criminal activity.

[6] The respondent brought an application for a declaration that the sublease was in good standing and the notices of termination were invalid; in the alternative, the respondent sought relief from forfeiture of the sublease.

[7] The application judge held that the appellant’s first notice of termination was invalid. The appellant had failed to give notice to the respondent to remedy the alleged breaches. Moreover, the alleged criminal activity related to Dragona Flooring, whose principals and employees were charged, and not to the respondent, its principals or employees, who were not charged, and the respondent and Dragona Flooring were independent companies.

[8] With respect to the second notice, the application judge held that the appellant had not demonstrated that any criminal activity had taken place or that the respondent had allowed or acquiesced in any criminal activity. He agreed that the respondent had breached art. 12.07(e) of the head lease by allowing Dragona Flooring to store hardwood flooring on the premises. However, pursuant to s. 20(1) of the Commercial Tenancies Act and s. 98 of the Courts of Justice Act, R.S.O. 1990, c. C.43, he granted the respondent relief from forfeiture of the sublease, summarizing his reasons at para. 22, as follows:

Accordingly, I find that there was no breach of Art. 6.01 of the head lease regarding criminal activity. As to Art. 12.07(e) of the head lease, there was a breach of the head lease. However, considering all of the circumstances, the conduct of DC [the respondent], the gravity of the breach and the disparity between the damage caused by the breach, which is none, and the forfeiture of five years remaining on the lease, I grant relief from forfeiture.

[9] The appellant submits that this appeal turns on the question of whether the application judge erred in finding that there was no criminal activity taking place at the subleased premises. Specifically, the appellant submits that the application judge erred in finding that the respondent did not store or permit Dragona Flooring to store stolen hardwood flooring at 85 Progress Avenue. The appellant submits that the application judge erred in failing to consider all of the evidence and also relies on the proposed fresh evidence as proof of these allegations.

[10] For the reasons that follow, we see no basis to interfere with the application judge’s order.

[11] First, we would not allow the appellant’s motion to admit fresh evidence. The proposed evidence does not constitute an acknowledgement by the respondent that criminal activity was occurring, adds nothing to the positions of the parties considered by the application judge, and does not otherwise support the appellant’s submissions. In our view, the proposed evidence, if admitted, would not have affected the outcome of the application.

[12] With respect to the appeal, we see no error of law or palpable or overriding error that would allow appellate interference with the application judge’s findings that no criminal activity was taking place at the premises and that the respondent had allowed or acquiesced in it.

[13] The appellant submits that there was clear evidence that the stolen hardwood flooring products were being stored at 85 Progress Avenue. Among other things, the appellant refers to the investigation carried out by the Toronto Police Services, and the results of the various searches conducted by them at 12 and 85 Progress Avenue. The appellant submits that the application erred in concluding that no stolen flooring was found at 85 Progress Avenue when, in fact, the Toronto Police Services had found the flooring at these premises as a result of its search on August 18, 2015.

[14] We disagree.

[15] At para. 11 of his reasons, the application judge directly referenced the admissible evidence of the police investigation into the stolen hardwood flooring products as follows:

In the summer of 2015, the Toronto Police Services were conducting an investigation into stolen hardwood flooring products. Eventually, their investigation led the police to search DF’s warehouse at 12 Progress Avenue and DC’s warehouse at the Premises pursuant to search warrants. Nothing was removed from the Premises by the police. No stolen products were found at the Premises by the police, although some paperwork was found at the Premises which suggested that stolen products may have been there at some point prior to the search.

[16] We see no basis for interfering with the application judge’s findings that were based on the admissible evidence before him. No affidavit or other sworn evidence from the American victims of the flooring theft, nor from the police, was filed in response to the application. The only affidavit evidence before the application judge was as follows: on behalf of the respondent, from Nizar Hamam, the president of the respondent, and Hassan Saad, an employee of Dragona Flooring; and on behalf of the appellant, from Greg Curran, the chief financial officer of the appellant.

[17] With respect to the contents of affidavits for use on applications, r. 39.01(5) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, only permits statements of a deponent’s information and belief with respect to facts that are not contentious, and only if the source of the information and the fact of the belief are specified in the affidavit. The allegations concerning criminal activity at the premises were highly contentious: in his affidavit, Nizar Hamam denied that there was stolen unfinished hardwood flooring on the subleased premises. However, the assertions set out in the appellant’s affidavit evidence on these serious, contentious issues at the heart of the dispute are largely based on double and triple hearsay from persons who did not file affidavits on the application. Indeed, some of those persons were not even identified.

[18] This case involved competing inferences that could have been made from the admissible evidence in the record. While another judge might have drawn the inferences urged by the appellant, the application judge’s findings were available to him on the record before him. This included the evidence of Nizar Hamam that the application judge preferred to the appellant’s evidence. He was entitled to do so.

[19] The appellant made other submissions in relation to art. 6.01 of the head lease. However, on the hearing of the appeal, the appellant fairly concedes that if we uphold the application judge’s finding that there was no criminal activity on the premises, this ground of appeal also fails.

[20] Lastly, any issues regarding the relief from forfeiture are met by the fact that the application judge exercised his discretion in making this order under s. 20(1) of the Commercial Tenancies Act and s. 98 of the Courts of Justice Act. Both of those provisions allowed the application judge a wide discretion to relieve against forfeitures on such terms as he considered just. We see no basis for interfering with the application judge’s exercise of his discretion in this case.

Disposition

[21] For these reasons, the motion to admit fresh evidence and the appeal are dismissed. Costs to the respondent fixed in the amount of $26,000, all inclusive.

“S.E. Pepall J.A.”

“E.E. Gillese J.A.”

“L.B. Roberts J.A.”