Court of Appeal for Ontario

Date: 2019-04-04 Docket: C66013 Judges: Lauwers, Benotto and Brown JJ.A.

Parties

Between

Crescent Hotels and Resorts Canada Company Plaintiff (Respondent)

and

2465855 Ontario Inc. Defendant (Appellant)

Counsel

David Woodfield, Matthew Karabus and Heyla Vettyvel, for the appellant

Tim Pinos and Carly Cohen, for the respondent

Hearing

Heard: March 29, 2019

On appeal from: The judgment of Justice Carole J. Brown of the Superior Court of Justice, dated September 21, 2018 with reasons reported at 2018 ONSC 5508.

Reasons for Decision

I. Overview

[1] The appellant, 2465855 Ontario Inc. (the "Owner"), owns a hotel in Toronto. On July 22, 2015, the Owner entered into a Hotel Management Agreement with the respondent, Crescent Hotels and Resorts Canada Company (the "Manager"), for a term of 10 years.

[2] In May 2016, the Owner terminated the Agreement. The Owner contended that it was entitled to terminate for "Cause-Manager" which, under the Agreement, was defined to include "the occurrence of a default under this Agreement of which Manager receives written notice (as provided in Section 12.5), that is not cured prior to the lapse of any applicable notice and grace periods set forth in Section 12.11." Section 12.11(a) of the Agreement defined events of default as including the failure of a party to "perform, keep or fulfill a covenant…in any material respect" and the continuance of such a failure for more than 30 days after receipt of a notice of default.

[3] In letters dated April 7 and 8, 2016, the Owner enumerated complaints about the Manager's performance. In its letter of April 19, 2016, the Owner advised the Manager that those complaints constituted events of default under the Agreement which, if not cured by May 7, 2016, would result in the termination of the Agreement. The Manager disputed that the complaints amounted to events of default and contended that the Owner had failed to give proper notice. By letter dated May 11, 2016 the Owner terminated the Agreement, effective May 20, 2018.

[4] The Manager brought this action alleging that the Owner lacked cause to terminate the Agreement. It argued that the Owner was required to pay the Manager an early termination fee pursuant to s. 4.2(b) of the Agreement because the Owner had terminated the Agreement without cause "during the first two years of the term of this Agreement."

[5] The Manager moved for summary judgment for payment of the early termination fee, together with certain expenses. The motion judge granted summary judgment for those amounts, which totalled $1,026,652.44, plus costs.

[6] We dismissed the Owner's appeal at the hearing, with reasons to follow. These are those reasons.

II. Analysis

[7] The Owner advances several grounds of appeal.

Failure to invoke expressly the Rule 20.04(2.1) evidence-assessment powers

[8] First, the Owner submits that the motion judge erred in principle because, having stated that she was not exercising her evidence-assessment powers under r. 20.04(2.1) of the Rules of Civil Procedure, she in fact did so, writing at para. 19 of her reasons that she had "weighed the evidence contained in the affidavits". The Owner contends that the motion judge erred in principle by weighing evidence without expressly invoking her evidence-assessment powers.

[9] Under r. 20.04(2.1), in determining whether there is a genuine issue requiring a trial, a judge may exercise several evidence-assessment powers: weighing the evidence; evaluating the credibility of a deponent; and drawing any reasonable inference from the evidence. These powers are presumptively available to a motion judge; they are not exceptional; and they may be exercised provided their use is not against the interests of justice: Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87 at paras. 66 and 67. Where factual disputes exist on the written motion record, a judge most likely will resort to such powers when evaluating whether a genuine issue requiring a trial exists.

[10] It follows that where a judge weighs the evidence filed on a summary judgment motion – as the reasons of the motion judge in this case clearly disclose that she did – the judge should acknowledge candidly that she is exercising her r. 20.04(2.1) powers and then go on to explain the basis for any resulting findings of fact. In this case, the better course would have been for the motion judge to make such an acknowledgement. However, at the end of the day, the motion judge simply employed evidence-assessment powers that were otherwise available to her under r. 20.04(2.1) and she explained the basis for her findings. In those circumstances, we see no error in principle that would merit appellate intervention.

The test for failure to perform a covenant "in any material respect"

[11] As noted, s.12.11(a) of the Agreement defined events of default as including the failure of a party to "perform, keep or fulfill a covenant… in any material respect" and the continuance of such a failure for more than 30 days after receipt of a notice of default. In para. 25 of her reasons, relying on the decision in Guarantee Company of North America v. Gordon Capital Corp., [1999] 3 S.C.R. 423, at para. 44, the motion judge held that a "[m]aterial breach is one that is material, substantial and goes to the root of the contract". As applied to the covenants in the Agreement, it would be a breach that deprived the Owner "of the entirety of all benefits of the contract or the very thing the parties contracted for."

[12] The Owner submits the motion judge erred in interpreting the phrase "in any material respect" in the Agreement as requiring that a breach rise to the level of one that "goes to the root of the contract" in order for the Owner to assert it as an event of default.

[13] We accept that the motion judge misinterpreted the term "in any material respect" in the Agreement. Her contractual interpretation analysis ignored the very language of s. 12.11(a)(i) of the Agreement, which contemplates that a party could assert, as an event of default, the failure to perform a covenant yet the defaulting party could cure the breach upon receipt of a notice of event of default. Breaches capable of being cured under s. 12.11(a)(i) therefore could include ones far less serious than a breach going to the root of the contract.

[14] Notwithstanding that interpretative error, a reading of the motion judge's reasons as a whole leads us to conclude that the error did not affect her analysis regarding the breaches alleged by the Owner. After reviewing each of the alleged breaches, the motion judge concluded that the Owner had "failed to prove any of the breaches above": at para. 26. As we discuss below, those findings of the motion judge were anchored firmly in the record and in the language of the Agreement, and they are free from reversible error.

The interim manager

[15] The next ground of appeal concerns the Manager's temporary appointment of Ms. Linda Westgate as interim manager of the hotel during the first few months of the Agreement. There is no dispute that under s. 1.1(lll) of the Agreement the Manager could appoint an interim manager pending the Owner's approval of a permanent general manager (s. 2.2(b)(ii)). Ms. Westgate's tenure as interim hotel manager ran from September through until the end of November 2015, when she was replaced by the new General Manager, Olivier Rochefort.

[16] In its April 7, 2016 letter, the Owner alleged that Ms. Westgate did not have the necessary working visa when she served as the interim manager. The Owner characterized this as one of the events of default on which it was relying to terminate the Agreement for Cause-Manager.

[17] The Owner submits the motion judge erred by accepting an unsubstantiated hearsay allegation in the Manager's evidence that Ms. Westgate was not working in Canada illegally. We do not give effect to this ground of appeal for two reasons.

[18] First, in her affidavit on behalf of the Owner, Ms. Zhang asserted that she had learned that Ms. Westgate never secured proper Canadian work documentation, but Ms. Zhang failed to disclose the source of that information, contrary to r. 20.02(1). By contrast, in his reply affidavit for the Manager, Mr. Cohen disclosed the source of his information that a representative of the Manager would have written to Canadian immigration authorities regarding Ms. Westgate's temporary employment in Canada.

[19] Second, under the Agreement, an event of default that could justify termination for Cause-Manager had to amount to a failure to perform a covenant "in any material respect" that was not cured within 30 days after receipt of notice of default. The Owner took the position that it gave formal notice of default on April 7, 2016, yet Ms. Westgate's tenure as interim manager had ended some four months earlier, upon the appointment of a permanent general manager. Simply put, when the Owner gave notice of default there was no event of default regarding Ms. Westgate left to cure. In those circumstances, the Manager was not in breach of a covenant in the Agreement in respect of Ms. Westgate that could justify termination for Cause-Manager.

The permanent General Manager

[20] The Owner submits that the motion judge erred in failing to find that the Manager breached the Agreement by appointing Mr. Rochefort as General Manager in November 2015 as he was unqualified for the position. The motion judge rejected the Owner's argument, holding that "it was the owner's final decision to hire Olivier Rochefort after considering and rejecting other candidates presented by Crescent": at para. 15. That finding was fully supported by the record, which clearly showed that the Owner had approved the hiring of Mr. Rochefort pursuant to s. 2.2(b)(ii) of the Agreement.

[21] As well, the Owner contended that the Manager failed to fire Mr. Rochefort "in a timely manner". The evidence did not support that assertion. Towards the end of February 2016, the Owner insisted that the Manager fire Mr. Rochefort. On March 24, 2016 the Manager advised the Owner that it "accepts the termination of [Mr. Rochefort] from the general manager position." As the Owner acknowledges in its factum, Mr. Rochefort was terminated at that time. Nevertheless, as part of its April 7, 2016 notice letter, the Owner required that the Manager "immediately" terminate Mr. Rochefort, failing which the Owner would terminate the Agreement for cause. Whatever the purpose of the Owner making such further demand given the Manager's earlier acceptance of the decision to terminate Mr. Rochefort, after receipt of the Owner's particularized notice of April 19, 2016, the Manager confirmed again, on April 26, 2016, that it had transitioned Mr. Rochefort from the hotel. That was well within the 30-day cure period.

The 2016 Budget

[22] Finally, the Owner contends that the motion judge erred by failing to find that the Manager had breached the budget-preparation provisions of Article 7 of the Agreement. We see no error in the motion judge's finding, at para. 15, that the Owner approved the 2016 budget. On her cross-examination, Ms. Zhang, the Owner's representative, clearly admitted that the 2016 budget ultimately was approved.

[23] In any event, the budget was part of the Annual Plan described in Article 7 of the Agreement. Section 7.2 provided that in the event the Owner did not approve the Annual Plan proposed by the Manager, the Manager would continue to operate the hotel in accordance with the standards contained in the Agreement, pending settlement of a mutually agreeable Annual Plan. There was no dispute that the Manager submitted an Annual Plan, which included a budget. Accordingly, by the terms of the Agreement the Owner could not rely on its own refusal to approve the Plan as an event of default to terminate for Cause-Manager.

Summary

[24] For these reasons, we see no reversible error in the motion judge's conclusion that there was no genuine issue requiring a trial in respect of the Manager's entitlement under the Agreement to the early termination fee. Since the Owner does not take issue with the motion judge's calculation of the early termination fee and the other items making up the judgment amount, that is sufficient to dispose of the appeal. There is no need to deal with the further ground of appeal concerning the adequacy of the Owner's notice of default.

III. Disposition

[25] The appeal is dismissed.

[26] The respondent Manager is entitled to its costs of the appeal fixed in the amount of $20,000, inclusive of disbursements and applicable taxes.

"P. Lauwers J.A."

"M.L. Benotto J.A."

"David Brown J.A."