Court of Appeal for Ontario

Citation: 2019 ONCA 452 Date: May 31, 2019 Docket: C66367

Judges: Sharpe, Trotter and Harvison Young JJ.A.

Between

McRae Cold Storage Inc. Applicant (Appellant)

and

Nova Cold Logistics ULC Respondent (Respondent)

Counsel

Ronald Birken, for the appellant

Emily Sherkey and Winston Gee, for the respondent

Heard: May 28, 2019

On appeal from the judgment of Justice Sandra Nishikawa of the Superior Court of Justice, dated December 13, 2018, with reasons reported at 2018 ONSC 7494.

Reasons for Decision

(1) Factual Background

[1] This appeal arises out of a commercial lease between the parties. The appellant McRae Cold Storage Inc. leased space in a cold storage facility owned by the respondent Nova Cold Storage Logistics ULC pursuant to a lease agreement dated March 2013 (the "Lease"). While otherwise a "gross lease", a clause in the Lease allowed Nova Cold to pass along certain increases in energy costs to McRae. Although the Lease was for a 5-year term, it provided McRae with an option to renew, if the Lease was in force and McRae was not in default under any terms of the Lease on the date it exercised the option to renew.

[2] Beginning in the summer of 2016, a dispute arose between the parties as to the proper interpretation of the clause which allowed Nova Cold to pass along increased energy costs to McRae. Nova Cold claimed it was entitled to additional payment under the clause. McRae continued to pay its monthly rent, but did not pay any of the increased energy costs claimed by Nova Cold.

[3] In March 2017, Nova Cold advised McRae that it considered McRae's failure to pay the increased energy costs claimed to be a default under the Lease. Nova Cold reiterated this position in April and again in July 2017, and also informed McRae that if it failed to pay it would not be permitted to exercise its option to renew the Lease. By this time, both parties had retained counsel and McRae had indicated that it might need to commence an application for the interpretation of the energy provisions if they could not agree.

[4] At the end of September 2017, McRae wrote to Nova Cold advising that it was exercising the renewal option. Nova Cold responded a few days later and rejected the purported renewal, stating again that since McRae was in default it could not renew the Lease.

[5] McRae took no further steps for a number of months.

[6] In early March 2018, McRae brought an application seeking an interpretation of the energy clause. Among other relief, it sought: (i) a declaration that it was not in default of its obligations under the Lease (i.e. the energy clause) and that it had properly exercised its option to renew; and (ii) in the event that McRae was in default, a declaration that it was entitled to relief from forfeiture. On March 15, 2018, McRae deposited the amount claimed by Nova Cold ($136,000) as the increased energy costs with its solicitors. This money was to be released to Nova Cold if it was determined to be owing, and if McRae was granted renewal of the lease. The Lease expired on March 31, 2018.

(2) The Decision Below

[7] The application judge, following a comprehensive analysis of the law and the evidence before her, found that McRae was in breach of its obligation to pay for increased energy costs as contemplated by the Lease. As a result, McRae was in default and not entitled to renew.

[8] The application judge also declined to provide McRae relief from forfeiture. Citing this court's decision in 120 Adelaide Leaseholds Inc. v. Oxford Properties Canada Ltd., [1993] O.J. No 2801 (C.A.), the application judge found that the court's equitable jurisdiction to grant relief from forfeiture was more limited in cases of a failure to perform conditions precedent to a right. She found that McRae had failed to act with due diligence, and thus that it was not an appropriate case to provide relief from forfeiture.

(3) Issues and Analysis

[9] On appeal, McRae does not take issue with the application judge's interpretation of the energy clause and conclusion that it was in default under the Lease. Rather, it appeals only on the basis that the application judge erred in declining to grant relief from forfeiture. To this end, it argues that the application judge applied the wrong legal test, as she failed to apply the test identified in Saskatchewan River Bungalows Ltd v. Maritime Life Assurance Company, [1994] 2 S.C.R. 490, as structuring a court's discretion to provide relief from forfeiture.

[10] We see no merit in this position. Given the application judge's interpretation of the Lease, which McRae does not challenge, there can be no question that McRae was in default under the Lease. As a result, it had not satisfied one of the conditions precedent to the renewal of the Lease. The application judge correctly noted that where preconditions to the renewal of a lease are in issue, the jurisdiction to grant relief from forfeiture is narrower than the three-pronged test applied in cases such as Saskatchewan River Bungalows. With respect to the renewal of a lease, a precondition for the exercise of any such equitable discretion is that the tenant has made diligent efforts to comply with the terms of the lease which are unavailing through no default of his or her own: 120 Adelaide Leaseholds Inc., at para. 9; Ross v. T. Eaton Co. (1992), 11 O.R. 115 (C.A.), at pp. 124-125; 1383421 Ontario Inc. v. Ole Miss Place (2003), 67 O.R. (3d) 161 (C.A), at para. 80; Mapleview-Veterans Drive Investments Inc. v. Papa Kerrollous IV Inc., 2016 ONCA 93, 344 O.A.C. 363, at paras. 55-56. The application judge did not apply the wrong legal test.

[11] Nor is there any basis to interfere with the application judge's conclusion that McRae failed to exercise due diligence in seeking to comply with the terms of the Lease. In light of the correspondence between the parties, there was an ample evidentiary basis upon which to conclude that McRae had not acted with diligence to cure its default under the Lease or to obtain a judicial interpretation of the impugned energy clause. We would not interfere with the application judge's conclusion in this regard.

[12] Accordingly, the appeal is dismissed. As agreed by the parties, costs are payable by the appellant to the respondent in the amount of $24,000 inclusive.

"Robert J. Sharpe J.A."

"G.T. Trotter J.A."

"A. Harvison Young J.A."