COURT OF APPEAL FOR ONTARIO DATE: 20200212 DOCKET: C63947

Simmons, Pardu and Nordheimer JJ.A.

BETWEEN

Champion Products Corp., Walkerville Commercial Centre Inc., formerly 1206738 Ontario Limited, and 19298446 Ontario Inc., carrying on business as “The Party Warehouse” Plaintiffs (Respondents/Appellants by way of cross-appeal)

and

Intact Insurance Company, formerly AXA Insurance (Canada), and AXA Insurance (Canada) Defendants (Appellants/Respondents by way of cross-appeal)

Counsel: Paul J. Pape and Brodie Noga, for the appellants/respondents by way of cross-appeal Myron W. Shulgan, Q.C. and Donald Leschied, for the respondents/appellants by way of cross-appeal

Heard: November 5, 2019

On appeal from the order of Justice George W. King of the Superior Court of Justice, dated May 18, 2017, with reasons reported at 2017 ONSC 1740.

Simmons J.A.:

I. Introduction

[1] The respondents, collectively “Champion”, are related companies that owned or occupied a commercial building in Windsor, Ontario. Much of the building was destroyed by fire on February 15, 2011.

[2] The appellants, collectively “Intact”, insured the destroyed building under a multi-peril commercial insurance policy.

[3] The main issue on appeal is whether, on a summary judgment motion, the motion judge erred in holding Intact must indemnify Champion for recoverable depreciation (essentially, the difference between the destroyed building’s actual cash value at the time of the fire, and the cost to replace it).

[4] Under a rider to the policy, Champion was entitled to replace the destroyed building at the same or a different site and be indemnified for recoverable depreciation provided it effected replacement with “due diligence and dispatch” and a building of “like kind and quality”.

[5] Nearly two years after the fire, Champion had not replaced the destroyed building. On February 6, 2013 it issued a statement of claim seeking indemnity under its policy and damages.

[6] On May 6, 2013 the parties entered into an agreement (the “May 6, 2013 settlement agreement”) under which they settled some of the claims in the pending action. They agreed on the actual cash value and replacement cost of the destroyed building; a formula for determining the recoverable depreciation payable if Champion replaced it; and a requirement that Champion account for land acquisition costs if it effected replacement at a different site. They also agreed that Champion would have 24 months from May 6, 2013 to proceed with replacement of the destroyed building, failing which it would be “deemed to have forever waived and forfeited” any claim for recoverable depreciation.

[7] Champion subsequently entered into two agreements to purchase replacement properties prior to the expiry of the 24-month deadline. It terminated the first agreement in April 2014. On February 17, 2015, Champion entered into an agreement to purchase a Scarborough property to replace the destroyed building.

[8] Shortly before the expiry of the 24-month deadline, on April 29, 2015, Intact confirmed the Scarborough property met the “like kind and quality” requirement.

[9] On May 1, 2015 the parties exchanged correspondence confirming they had “reached settlement of the outstanding issues regarding the building loss claim on the basis of a further payment of $3 million” (the “May 1, 2015 agreement”). However, the May 1, 2015 agreement was subject to various conditions, including Champion closing the February 17, 2015 agreement to purchase the Scarborough property.

[10] On May 12, 2015, Champion entered into a revised agreement to purchase the Scarborough property. The revised agreement required the vendor to complete certain roof repairs prior to closing.

[11] Without advising Intact, on November 9, 2015 Champion entered into an agreement to purchase a different replacement property, this time in Pickering. Shortly thereafter, in mid-November 2015, Champion terminated its agreement to purchase the Scarborough property.

[12] Intact learned of these developments on November 27, 2015. Almost three months later, on February 16, 2016, Intact informed Champion that as a result of Champion failing to close the purchase of the Scarborough property Champion had forfeited its entitlement to recoverable depreciation under the policy and the May 6, 2013 settlement agreement as quantified in the May 1, 2015 agreement.

[13] During the intervening period, however, Intact had taken steps to assess the suitability of the Pickering property as a replacement for the destroyed building.

[14] Champion subsequently moved for summary judgment, seeking a declaration that Intact had waived Champion’s obligation to replace the destroyed building within 24 months of May 6, 2013. In the alternative, Champion claimed relief from forfeiture.

[15] The motion judge found that the May 6, 2013 settlement agreement required Champion to complete the purchase of another building of like kind and quality within the stipulated 24-month replacement deadline. However, he concluded the May 1, 2015 agreement effectively amended the May 6, 2013 settlement agreement through a qualified waiver of the 24-month replacement deadline, which instead required Champion to complete the purchase of the Scarborough property.

[16] Further, the motion judge held that, by its conduct after November 27, 2015, Intact had waived Champion’s failure to complete the purchase of the Scarborough property and its right to deem that Champion had forfeited any claim for recoverable depreciation. He concluded that Champion was therefore entitled to be indemnified for recoverable depreciation. However, he also found that Intact’s waiver was limited. All that was waived was the condition that Champion had to close the Scarborough purchase to receive $3,000,000; the waiver did not extinguish the policy or subsequent agreements under which the replacement property issue was settled.

[17] Having made those findings, the motion judge granted partial summary judgment to Champion for $3,000,000. He did not reach the issue of relief from forfeiture.

[18] On appeal, Intact argues the motion judge’s findings were premised on an erroneous conclusion that Intact had to give notice to Champion that by failing to close the Scarborough transaction, it had forfeited its entitlement to recoverable depreciation under the policies and the subsequent agreements. Intact asserts the policies and agreements were forfeited in accordance with their terms when Champion failed to complete the Scarborough purchase. By its subsequent conduct Intact did no more than fulfill its good faith obligations as an insurer.

[19] Champion responds that the motion judge’s finding that Intact’s conduct in May and June 2015 was a qualified waiver of its entitlement to deem Champion had forfeited its right to replace its destroyed building was an error. Rather, Intact’s conduct was a complete waiver of its right to rely on the 24-month deadline. In any event, the motion judge’s finding that Intact waived Champion’s failure to close the Scarborough transaction is entitled to deference.

[20] By way of cross-appeal, Champion seeks a declaration that on May 1, 2015 and thereafter Intact waived the 24-month deadline in the May 6, 2013 settlement agreement. In the alternative, Champion seeks an order that it is entitled to relief from forfeiture.

[21] At the request of the panel, in post-hearing submissions the parties confirmed that Champion never completed the Pickering transaction. The panel also requested that Champion clarify the appropriate remedy for its relief from forfeiture claim. Champion responded that “the remedy should remain a monetary award of damages … of $3,000,000”. In the alternative, Champion requested a trial of the issue of the amount Intact should have paid as recoverable depreciation to fund the purchase of the Pickering property. In support of its position, Champion asserted that to simply find that Champion still had the right to purchase a replacement property would be unjust because of the dramatic rise in the cost of commercial real estate in the Greater Toronto Area.

[22] Intact asserts that Champion’s original failure and current refusal to replace the destroyed building disentitle it to relief from forfeiture.

[23] For the reasons that follow, I would allow the appeal, set aside the summary judgment, and substitute a declaration that Intact did not waive Champion’s failure to replace its destroyed building as required under the policies and agreements of the parties. I would dismiss Champion’s cross-appeal.

II. Background

(1) The Policies

[24] The destroyed building was insured under a commercial insurance policy and a Megaproperty Rider. The commercial insurance policy required payment of the actual cash value of the building in the event of a loss. The Megaproperty Rider provided replacement cost coverage.

[25] Clause 18, paragraph f, of the Megaproperty Rider provided for an actual cash value valuation. Paragraph 4 ac. of the Rider set out the replacement cost coverage extension and the requirements for the insured to effect replacement with “due diligence and dispatch” and to complete replacement prior to settlement being made:

4 ac. Replacement cost: the basis of valuation described in paragraph f. of clause 18. is changed to the following:

All other insured property for which no more specific conditions have been set out: the “replacement cost” at the time and place of loss or damage, but not exceeding the amount actually and necessarily expended to complete the “replacement”, provided:

1. “Replacement” shall be effected by the insured with due diligence and dispatch.

2. Settlement on a “replacement cost” basis shall be made only when “replacement” has been completed by the Insured.

If the Insured does not comply with requirements (1) and (2) above, settlement shall be made as if this extension was not in effect. [Emphasis in original.]

[26] “Replacement” and “Replacement cost” are both defined in clause 22 of the Rider:

22. DEFINITIONS

Wherever used in this rider or its endorsements:

u. “Replacement” includes repair, construction or re-construction with new property of like kind and quality. If new property of like kind and quality is unobtainable, new property as similar as possible to that lost or damaged and which is capable of performing the same function shall be considered to be new property of like kind and quality for the purpose of this definition.

v. “Replacement cost” means whichever is the least of the cost of replacing, repairing, constructing or re-constructing the property on the same site with new property of like kind and quality and for like occupancy without deduction for depreciation.

(2) The May 6, 2013 Settlement Agreement

[27] By May 6, 2013, more than two years had elapsed from the fire and Champion had sued Intact for indemnity and damages. One major issue between the parties was the building loss claim. On May 6, 2013 the parties entered into a settlement agreement to resolve aspects of that claim as well as other claims. [1]

[28] As part of the May 6, 2013 settlement agreement, the parties agreed that the actual cash value of the building claim was $2,850,000. After deducting advance payments of $1,860,000, Intact paid a further $990,000 under the May 6, 2013 settlement agreement to fully indemnify Champion for the actual cash value of the destroyed building.

[29] The parties also agreed on the Replacement cost of the destroyed building: a total of $7,600,000. Champion would only be entitled to Replacement cost if the new property was of “like kind and quality and for similar occupancy” as the destroyed building. The amount payable upon replacement would be the lesser of $7,600,000 minus $2,850,000 and the actual replacement cost minus $2,850,000. If Champion replaced the property at a different site, Champion would have to account to Intact for land acquisition costs to determine the recoverable depreciation amount. If the parties could not reach an agreement on land value, it was to be determined through the appraisal process as provided for in the policy and under the Insurance Act, R.S.O. 1990, c. I.8.

[30] The 24-month deadline for replacement of the destroyed building was stipulated under paragraph 2 j. of the May 6, 2013 settlement agreement, which provided, in part:

The insured/Plaintiff will have 24 months from the date of settlement to proceed with replacement in accordance with the policy and claim and the recoverable depreciation entitlements under this settlement failing which the insured/plaintiff will be deemed to have forever waived and forfeited any claim on the policies or under this settlement for recoverable depreciation. [Emphasis added.]

(3) The Vaughan Agreement of Purchase and Sale

[31] Champion’s first attempt at obtaining a replacement for the destroyed building involved a March 7, 2014 agreement of purchase and sale for a warehouse property located in Vaughan.

[32] Champion and the vendor of the Vaughan property set the value of the land at $2,400,000, whereas Intact’s appraiser valued the land at $4,600,000. Ultimately, Champion could not secure the additional financing required to complete the purchase and did not close the transaction. Champion communicated this to Intact on April 29, 2014.

(4) The February 17, 2015 Scarborough Agreement of Purchase and Sale

[33] On February 17, 2015 Champion entered into an agreement to purchase a building located in Scarborough. The original closing date was April 29, 2015.

[34] However, as noted by the motion judge, there were “numerous complications and considerations” related to whether this property would meet the “like kind and quality for similar occupancy” requirement. Eventually, on April 29, 2015 Intact indicated the Scarborough property met that requirement.

(5) The May 1, 2015 Settlement Agreement

[35] The parties reached an agreement on April 30, 2015 concerning replacement cost. The agreement was confirmed by correspondence between counsel on May 1, 2015.

[36] On May 1, 2015 counsel for Intact wrote, in part:

I write to confirm that we have reached settlement of the outstanding issues regarding the building loss claim on the basis of a further payment of $3 million. The settlement is subject to:

1. The closing of the purchase of the [Scarborough property] in accordance with the Agreement of Purchase and Sale dated February 17, 2015 reflecting a purchase price of $7,450,000.00, subject to the usual adjustments on closing.

2. … Should the purchase price turn out to be less than represented then the amount payable by the Defendant/Insurer will be reduced by the amount to which the purchase price is less than $7,450,000.00. [2]

[37] Counsel for Champion responded by email the same day: “We will comply with the terms of the closing of the Scarborough property, as you spelled out.”

(6) The May 12, 2015 Scarborough Agreement of Purchase and Sale

[38] The February 17, 2015 Scarborough agreement of purchase and sale allowed Champion the right to inspect the property before closing. On doing so, Champion discovered that the roof of the Scarborough property required repairs and declined to complete the original agreement of purchase and sale.

[39] On May 12, 2015 Champion entered into a second agreement to purchase the Scarborough property, which superseded the February 17, 2015 agreement of purchase and sale. This agreement required the vendor to effect roof repairs prior to closing.

[40] Closing was scheduled for June 29, 2015. By letter dated June 25, 2015, in which Intact’s counsel acknowledged reviewing the May 12, 2015 Scarborough agreement of purchase and sale, counsel for Intact forwarded a cheque payable to counsel for Champion, in the amount of $3,000,000 to be held in trust in accordance with the May 6, 2013 settlement agreement. Subject to any agreed-upon extension of the closing date, counsel for Intact requested that the cheque be returned if the transaction did not close as scheduled. Counsel for Intact also requested, in accordance with his May 1, 2015 correspondence, that a cheque for the amount of any reduction in the purchase price be sent to him if the final purchase price was less than $7,450,000.

(7) Termination of the Scarborough Agreement of Purchase and Sale and Subsequent Events

[41] The closing date of the Scarborough agreement of purchase and sale was ultimately extended to November 17, 2015. [3] On November 16, 2015 Champion cancelled the Scarborough agreement of purchase and sale and demanded the return of its deposit as the required roof repairs had not been completed.

[42] In the meantime, on November 9, 2015, Champion had entered into an agreement to purchase a Pickering property through a related company, Dynamic Holdings, for $7,400,000. The closing date was March 31, 2016.

[43] Intact learned of these developments on November 27, 2015 at an examination for discovery concerning Champion’s business interruption loss claim. By letter dated December 4, 2015 Champion’s counsel requested that the Pickering property be treated as a replacement property. Following further correspondence from Champion’s counsel, on January 5, 2016 Intact’s counsel responded:

I do not currently have instructions. In fact my instructions are to request return of the money. I am seeking clarification and hope to have a further response before your deadline. In the meantime what is the closing date and is the deal likely to close on that date, assuming financing.

[44] On January 13, 2016 Intact’s counsel wrote again to Champion’s counsel. In his letter, counsel confirmed that he did not have instructions to consent to the substitution of the Pickering property for the Scarborough property and allow the $3,000,000 settlement funds to be retained and used for that purpose. However, he confirmed Intact was looking further at the issue.

[45] In his January 13, 2016 letter, Intact’s counsel also asserted that Champion’s failure to replace the building within the 24-month timeline stipulated in the May 6, 2013 settlement agreement resulted in Champion having forfeited the right to recoverable depreciation. He acknowledged, at least implicitly, that Intact would have permitted the completion of the Scarborough purchase. However, as that transaction was not completed “technically” Champion was required to return the $3,000,000 cheque. Nonetheless, as the matter remained under review, Champion’s counsel could retain the $3,000,000 cheque in trust pending further direction from Intact’s counsel.

[46] Following the January 13, 2016 letter, Intact’s counsel sought further information concerning the demise of the Scarborough transaction and the Pickering purchase. Intact also obtained an appraisal of the Pickering property together with confirmation from the appraiser that it would meet the “like kind and quality” requirement. Although Intact learned in late January 2016 that the latter requirement was satisfied, its appraiser valued the land at significantly less than the Champion appraisal. Intact’s appraisal resulted in a recoverable depreciation amount of $2,600,000; whereas Champion’s resulted in $3,225,000.

[47] While Intact’s decision regarding the Pickering property remained under consideration, Champion obtained extensions to the financing condition to keep the purchase agreement alive. To obtain an extension to February 15, 2016, Champion paid the vendor a $20,000 non-refundable additional deposit.

[48] As I have said, on February 16, 2016 Intact notified Champion through counsel that as a result of Champion not closing the purchase of the Scarborough property Champion had forfeited its entitlement to recoverable depreciation under the policies and the May 6, 2013 settlement agreement as quantified in the May 1, 2015 agreement. Further, Intact rejected Champion’s request to treat the Pickering property as a replacement, pointing primarily to the fact that it was being asked to pay $400,000 more than it would have had to pay had Champion proceeded in accordance with the parties’ agreements.

[49] Intact therefore demanded the return of its $3,000,000 cheque.

III. The Motion Judge's Reasons

[50] The motion judge made several key findings that led to his conclusion that Intact was required to pay Champion $3,000,000 as recoverable depreciation for the destroyed building.

[51] First, he concluded that the May 6, 2013 settlement agreement resolved the outstanding replacement property issues between the parties. Under the policy, replacement could occur in various ways. The motion judge found that the 24-month deadline specified in the May 6, 2013 settlement agreement applied to all forms of replacement. If Champion failed to replace as permitted within that timeframe, it would be deemed to have forever waived and forfeited any claim for recoverable depreciation under the policies or the settlement. These findings are not challenged on appeal.

[52] Second, the motion judge concluded that, in the May 1, 2015 agreement, the parties effectively amended the May 6, 2013 settlement agreement. They did so through a qualified waiver of the 24-month deadline such that Champion would still be entitled to the $3,000,000 recoverable depreciation payment if it effected replacement after that date, provided it completed the February 17, 2015 agreement to purchase the Scarborough property.

[53] Third, the motion judge found that Intact was in a position as of November 27, 2015 (the date Intact learned that Champion had terminated the Scarborough purchase agreement), or within a reasonable time thereafter, to notify Champion that by aborting the Scarborough purchase it had forever waived and forfeited any claim on the policies or under the settlement for recoverable depreciation.

[54] Fourth, the motion judge found that by its conduct after November 27, 2015, Intact demonstrated “a clear and unequivocal intention to calculate the recoverable depreciation owing pursuant to the policy utilizing the Pickering property in substitution for the Scarborough property.” Intact had therefore waived Champion’s failure to close the Scarborough transaction and its right to deem that Champion had waived and forfeited any claim for recoverable depreciation.

[55] Finally, the motion judge concluded that Intact’s waiver was of limited scope and effect. All Intact had waived was the condition that, to receive the agreed upon $3,000,000, Champion had to close the Scarborough purchase – the waiver did not extinguish the policy or subsequent agreements under which the replacement property issue was settled.

[56] The motion judge therefore granted partial summary judgment to Champion and ordered Intact to pay Champion the $3,000,000 agreed upon as recoverable depreciation.

IV. Analysis

[57] The main issue on appeal and the first issue raised by Champion on its cross-appeal are interrelated. I will therefore consider them together.

(a) Did the motion judge err in finding Intact waived Champion’s failure to complete the purchase of the Scarborough property by which Champion itself forever forfeited any claim to recoverable depreciation?

[58] Intact argues that the motion judge erred in finding it waived Champion’s failure to complete the purchase of the Scarborough property because he concluded, erroneously, that Intact had to give Champion notice of forfeiture for forfeiture to occur. This error, says Intact, tainted the motion judge’s reasoning concerning whether Intact waived the forfeiture that occurred because of Champion’s failure to close.

[59] Champion responds with two arguments. First, it says the motion judge erred in failing to find that, by its conduct in May and June 2015, Intact waived the 24-month deadline in the May 6, 2013 settlement agreement. The failure to close the Scarborough purchase is therefore irrelevant because by that time, there was no longer a 24-month deadline for completing the purchase of a replacement building. This is also Champion’s first request by way of cross-appeal. Second, and in any event, Intact’s failure to give notice of forfeiture was but one factor the motion judge considered in concluding Intact waived Champion’s failure to close the Scarborough purchase. His finding in that regard is entitled to deference.

[60] As it is first chronologically, I will begin with Champion’s first argument.

(i) Did the motion judge err in failing to find that, by its conduct in May and June 2015, Intact waived the 24-month deadline in the May 6, 2013 settlement agreement?

[61] The motion judge referred to the May 1, 2015 agreement and the parties’ conduct as both amending the May 6, 2013 settlement agreement (by extending the 24-month replacement deadline) and as constituting a qualified waiver of that deadline.

[62] Champion argues that the May 1, 2015 agreement and the parties’ conduct did neither. Rather, Intact’s conduct in May and June 2015 amounted to a complete waiver of the 24-month replacement deadline.

[63] Champion points out that the May 1, 2015 agreement does not refer to the May 6, 2013 settlement agreement at all – let alone express any intention to amend it. Importantly, it does not identify any date to which the 24-month replacement deadline could be extended. Contrary to the motion judge’s conclusions, on its face, the sole effect of the May 1, 2015 agreement was to resolve the amount of the recoverable depreciation payable by Intact.

[64] Significantly, says Champion, on May 12, 2015 – six days after the expiration of the 24-month replacement deadline – it entered into a new agreement to purchase the Scarborough property that included different terms than those contained in the original February 17, 2015 agreement of purchase and sale. Nonetheless, on June 29, 2015 Intact advanced $3,000,000 to Champion’s counsel to complete the purchase of the Scarborough property. Intact advanced these funds at a time when it knew:

• the 24-month replacement deadline in the May 6, 2013 settlement agreement had expired;
• replacement had not been effected within the 24-month replacement deadline;
• no agreement had been made specifying a new replacement deadline; and
• the pending purchase of the Scarborough property was to be completed under an agreement of purchase and sale made after the 24-month replacement deadline specified in the May 6, 2013 settlement agreement.

[65] Given these circumstances, Champion submits that Intact’s conduct in May and June 2015 can only properly be interpreted as a complete waiver of the 24-month replacement deadline specified in the May 6, 2013 settlement agreement. Intact’s agreement to indemnify Champion based on an agreement of purchase and sale made after the expiry of the 24-month replacement deadline specified in the May 6, 2013 settlement agreement can reflect no other intention.

[66] I would not accept these submissions.

[67] Although Champion is correct that the May 1, 2015 agreement does not refer specifically to the May 6, 2013 settlement agreement or identify a specific date to which the 24-month replacement deadline was extended, I see no error in the motion judge’s conclusion that the May 1, 2015 agreement effected what I would refer to as a conditional waiver of that deadline.

[68] The motion judge observed that the May 1, 2015 agreement was made just days before the expiration of the deadline specified in the May 6, 2013 settlement agreement. Further, he found “there was clear recognition that the then current agreement of purchase and sale of the Scarborough property … was not going to close by May 6, 2015”.

[69] Under the May 1, 2015 agreement, the $3,000,000 settlement on account of recoverable depreciation was subject to closing the purchase of the Scarborough property in accordance with the February 17, 2015 agreement of purchase and sale. Although the correspondence did not explicitly refer to the May 6, 2013 settlement agreement, the only sensible interpretation of the term that the settlement was subject to closing the Scarborough transaction was that the 24-month replacement deadline was waived conditional on the February 17, 2015 agreement being completed.

[70] The motion judge made no explicit finding concerning the impact of the May 12, 2015 Scarborough agreement of purchase and sale. In my view, Intact’s counsel’s June 25, 2015 letter made it clear that Intact accepted the May 12, 2015 agreement of purchase and sale as a substitute for the February 17, 2015 agreement and, to the extent Intact was thereby waiving the 24-month replacement deadline in the May 6, 2013 settlement agreement, it was again doing so only conditionally – but now conditional on completion of the May 12, 2015 agreement.

[71] In his June 25, 2015 letter, Intact’s counsel acknowledged reviewing the May 12, 2015 agreement. Examination of the February 17, 2015 agreement of purchase and sale and the May 12, 2015 agreement reveals that the terms related to the recoverable depreciation issue had not changed. Both the property and the purchase price remained the same. The June 25, 2015 letter specified that Intact was proceeding on the assumption the transaction would close; enclosed a cheque for $3,000,000, the amount agreed upon in the May 1, 2015 agreement; and included the following requirements:

• if the $7,450,000 purchase price, which was the premise of the May 1, 2015 agreement, was adjusted below that figure, Champion was to repay the difference to Intact; and
• if the transaction did not close on June 29, 2015 for reasons other than a straightforward extension of the closing date, the $3,000,000 cheque was to be returned to Intact.

[72] Particularly in light of the latter requirement, I would reject the argument that Intact waived absolutely the 24-month replacement deadline by accepting this substitution. For these reasons, I would also reject the first ground of Champion’s cross-appeal.

(ii) Did the motion judge err in holding that Intact had to give notice to Champion that Champion had forfeited its entitlement to recoverable depreciation and in finding that Intact waived Champion’s failure to close the Scarborough transaction?

[73] I turn now to Intact’s argument that the motion judge erred in holding that Intact had to give notice to Champion that it had forfeited its entitlement to recoverable depreciation by failing to close the Scarborough transaction and further erred in finding Intact waived the obligation to close that transaction.

[74] Champion responds that the motion judge’s decision was not premised on a finding that Intact was required to provide Champion with notice of forfeiture. Instead, Intact’s failure to provide notice was simply one of many factors the motion judge properly considered in concluding that Intact had waived Champion’s obligation to complete the Scarborough purchase. The motion judge’s reasons and his finding of waiver are entitled to deference.

[75] I would accept Intact’s argument. I would set aside the motion judge’s finding that Intact waived Champion’s failure to close the Scarborough purchase and substitute a finding that Intact did not waive that obligation.

[76] The trial judge addressed three main issues before concluding that Intact waived Champion’s failure to complete the Scarborough purchase:

i) Did the parties negotiate an agreement that required Champion to replace the destroyed building on specific terms and conditions or else permanently forfeit its right to claim indemnity for a replacement property pursuant to the insurance policy?

ii) Did Champion fail to effect replacement in accordance with the insurance policy and subsequent agreements of the parties?

iii) If Champion did not replace the [destroyed building] pursuant to the specific terms and conditions of the insurance policy as amended by the agreements, did Intact waive Champion’s obligation in that respect?

[77] The motion judge answered the first question in the affirmative. Regarding the second question he concluded that by terminating the Scarborough transaction, Champion clearly failed to replace the destroyed building in accordance with the policy and the agreements of the parties. However, at para. 124 of his reasons, the motion judge stated: “Accordingly, I find that as of November 27, 2015 (or within a reasonable time thereafter) Intact was in a legal position to notify Champion that by aborting the Scarborough purchase Champion had forever waived and forfeited any claim on the policies or under the settlement for recoverable depreciation” (emphasis added).

[78] Subsequently, in addressing the issue of waiver of the failure to close the Scarborough transaction, the motion judge noted at para. 201 that upon learning of Champion’s actions Intact “had the ability to ‘deem Champion to have forever waived and forfeited any claim for recoverable depreciation’” (emphasis added).

[79] Further, at para. 202, the motion judge observed that Intact “failed to give clear and unambiguous notice to Champion that it had forfeited entitlement to recoverable depreciation … on November 27, 2015, or within a reasonable time thereafter” (emphasis added).

[80] In addition, at paras. 205 and 206, the motion judge stated:

In fact, other than occasionally appearing to be obtusely preserving its right to treat Champion as having forfeited entitlement to recoverable depreciation at an unspecified later date, the actions of Intact actually demonstrate an intention on its part to demonstrate whether the Pickering property qualified as a proper substitution of the Scarborough property. I conclude that the following actions taken by Intact had no relevance to the forfeiture issue, but were such that a reasonable person would conclude that Intact intended to assess the Pickering property and intended to waive the forfeiture of Champion … .

In these circumstances, Intact simply declaring that “a decision was pending” could not and did not have the legal effect of unilaterally giving Intact the right to take almost three months to make a decision as to whether to deem Champion to have forfeited recovery. [Emphasis added.]

[81] Finally, at paras. 207 to 209, the motion judge stated:

There is no evidence before the court that Intact reasonably needed any additional information in order to claim forfeiture and that such essential information was not otherwise available until February 2016.

In and of itself, that delay justifies a finding that Intact waived the right to act upon the breach committed by Champion in November 2017.

That conclusion is … buttressed by the extensive evidence … of the numerous and significant steps taken by Intact that cannot reasonably be interpreted … as required to determine whether to assert forfeiture.

[82] Reading the motion judge’s reasons as a whole, I can only conclude that he proceeded on the basis that Intact was required to give notice of forfeiture for forfeiture to occur and that further, Intact had to give such notice within some reasonable length of time after Champion defaulted.

[83] In doing so, the motion judge erred. None of the agreements or correspondence – the insurance policy, the May 6, 2013 settlement agreement, the May 1, 2015 agreement or counsel’s June 25, 2015 letter – require notice of forfeiture. On the contrary, under the May 6, 2013 settlement agreement forfeiture was automatic in the event of default.

[84] The Megaproperty Rider required simply that replacement be effected with due diligence and dispatch.

[85] The May 6, 2013 settlement agreement imposed the 24-month replacement deadline and stipulated that absent compliance “[Champion] will be deemed to have forever waived and forfeited any claim on the policies or under this settlement for recoverable depreciation”. Neither the May 1, 2015 agreement nor counsel’s June 25, 2015 letter amended the forfeiture provision in the May 6, 2013 settlement agreement. On its face, that provision created an automatic forfeiture.

[86] As I read the motion judge’s reasons, his conclusion that Intact waived Champion’s failure to complete the Scarborough transaction was tainted by his erroneous view that Intact was required to give notice of forfeiture. The motion judge therefore analyzed Intact’s actions on the assumption that Intact had to decide whether to forfeit Champion’s entitlement to recoverable depreciation. In doing so, he failed to recognize that, under the May 6, 2013 settlement agreement, Champion had forfeited its right to recoverable depreciation by its default.

[87] These errors led the motion judge to misinterpret the effect of Intact’s statements about the status of its obligations, the effect of its investigations of the Pickering property and the effect of the time it took to complete those investigations. The motion judge’s statements set out at paras. 79 and 80 above illustrate these points.

[88] As I read the motion judge’s reasons, he analyzed Intact’s actions through the lens of whether they related to either a decision to forfeit Champion’s entitlement to recoverable depreciation under the policy and agreements or a decision to waive Champion’s failure to close the Scarborough transaction.

[89] However, this reasoning ignores the reality that forfeiture was automatic and had already occurred. Therefore, the issue for Intact was not deciding whether to forfeit Champion’s right or whether to waive Champion’s breach, but solely whether to choose to accept the Pickering property as a replacement for the Scarborough despite the fact that forfeiture had already occurred. Put another way, Intact was effectively considering whether it should grant relief from forfeiture. In this latter context, Intact’s actions were necessarily directed solely at that question – and the fact that it was considering whether to accept the Pickering property did not evidence an intention to do so.

[90] On my review of the record, Intact’s post-November 27, 2015 conduct indicated – at most – a willingness to consider accepting the Pickering property as a substitute for the Scarborough property. Intact never indicated, either expressly or by its conduct, that it would do so. In particular, on January 5, 2016 Intact’s counsel informed Champion that he had “instructions … to request return of the money”. In another letter sent the following week, Intact’s counsel confirmed that Champion had forfeited its right to recoverable depreciation.

[91] At no point did Intact express or otherwise communicate an “unequivocal and conscious intention” to unconditionally waive Champion’s default and resulting forfeiture of its right to receive recoverable depreciation: Saskatchewan River Bungalows Ltd. v. Maritime Life Assurance Co., [1942] 2 S.C.R. 490, at p. 500.

[92] In the result, I would accept Intact’s argument that the motion judge erred in finding that Intact waived Champion’s failure to close the Scarborough transaction. Further, in the absence of evidence that Intact intended to or communicated an intention to waive Champion’s failure to comply with the 24-month deadline in the May 6, 2013 settlement agreement, I conclude there was no waiver. I therefore conclude Champion forfeited its right to recoverable depreciation when it failed to close the Scarborough transaction and that Intact never waived the forfeiture.

(b) Is Champion entitled to relief from forfeiture? [4]

[93] Although the motion judge did not address relief from forfeiture, both parties requested that we address the issue on appeal. Champion claims the equitable remedy of relief from forfeiture under both s. 129 of the Insurance Act and s. 98 of the Courts of Justice Act, R.S.O. 1990, c. C.43. It argues that it had a justifiable reason not to close the Scarborough transaction and was unable to close the Pickering transaction because Intact refused to fund it. Moreover, Intact has already allocated funds for the recoverable depreciation and would therefore suffer no prejudice if relief from forfeiture was granted.

[94] I would not grant Champion’s request. It seeks indemnity for recoverable depreciation in relation to the destroyed building. However, it asserts that requiring it to proceed with replacement now would be unjust, advances no plan for permitting it to do so and purports to claim damages for Intact’s failure to fund the Pickering transaction.

[95] Champion’s argument ignores the reality that Intact has indemnified Champion for the actual cash value of the destroyed building and that under the terms of the policies, absent replacement, Champion is not entitled to recoverable depreciation. I see no basis on which to grant relief from forfeiture when Champion has neither replaced its destroyed building nor proposed terms on which it should be permitted to do so now.

[96] As for a remedy in damages, Intact did not waive Champion’s forfeiture of its right under the policies and agreements to recoverable depreciation. Intact was not contractually obliged to fund the Pickering transaction. I therefore see no basis on which to award damages.

V. Disposition

[97] Based on the foregoing reasons, I would allow the appeal, set aside the summary judgment, substitute a declaration that Intact did not waive Champion’s failure to replace its destroyed building as required under the policies and agreements of the parties and dismiss the cross-appeal.

[98] Costs of the appeal are to Intact, on a partial indemnity scale fixed in the amount of $50,000, inclusive of disbursements and HST. If desired, the parties may file brief submissions not to exceed five pages concerning costs of the proceeding below. Intact should file any such submissions within 7 days of the release of these reasons, Champion may respond within 7 days thereafter. In the absence of submissions, the fees and HST awarded below shall be reversed, the parties may agree on disbursements and the order that Intact pay Champion $20,000 on account of the non-refundable deposit shall be set aside.

Released: “G.P.” February 12, 2020

“Janet Simmons J.A.”

“I agree. G. Pardu J.A.”

“I agree. I.V.B. Nordheimer J.A.”

Appendix A

May 6, 2013 Settlement Agreement

WHEREAS Champion Products Corp., Walkerville Commercial Centre Inc., formerly 1206738 Ontario Limited and 1298446 Ontario Inc. cob “The Party Warehouse" (hereinafter “the insured/plaintiff”) experienced losses following a fire on February 15, 2011; and

WHEREAS Intact Insurance Company, formerly AXA Insurance (Canada) and AXA Insurance (Canada) (hereinafter “the insurer/defendant”) Insured the Insured/plaintiff pursuant to various policies (hereinafter “the policy”) of Insurance at the time of the fire; and

WHEREAS the insured/plaintiff has made claims from the insurer/defendant on the policy; and

WHEREAS the insured/plaintiff has commenced legal action against the insurer/defendant in the Ontario Superior Court of Justice Identified by court file no. CV-13·18990 issued at Windsor, Ontario; and

WHEREAS the insured/plaintiff and insurer/defendant have reached partial settlement of claims on the policies and forming the subject of the legal action as hereinafter set out.

TERMS OF SETTLEMENT

1. IN CONSIDERATION of the insurer/defendant making further payments in the amount or ONE MILLION, TWO HUNDRED AND NINETY THOUSAND DOLLARS AND ZERO CENTS ($1,290,000.00) to the Insured/plaintiff over and above monies already advanced by the insurer/defendant to the lnsured/plaintiff, the sufficiency of which is hereby acknowledged, the Insured/plaintiff agrees as follows:

(a) The Insured/plaintiff agrees to settle all claims on the policy and forming the subject of the legal action, Including any claims past, present and future for bad faith, punitive, aggravated damages, damages for mental distress or any other extra contractual damages. This settlement does not include the claims for business interruption loss and the following “mega property extensions” of the policy (hereinafter “the miscellaneous claim”) nor to interest and costs:

• Accounts receivable;
• Extra expense;
• Professional fees;
• Proof of Loss preparation costs;
• Valuable papers and business records; and
• Catchall coverage, as stated in the policy, as it relates to any of the categories of unsettled claims.

The business interruption and miscellaneous claim specifically remain unsettled and pan of the ongoing litigation claim, including interest and costs;

(b) The insured/plaintiff agrees to abandon and not hereafter pursue any claims for bad faith, punitive, aggravated, mental distress damages or any other extra contractual claims;

(c) The insured/plaintiff agrees to execute a Proof of Loss reflecting the payments hereinafter of $1,290,000.00;

FURTHER PARTICULARS OF THE SETTLEMENT

2. As part of the consideration for the payment of $1,290,000.00 the Insured/plaintiff agrees as follows:

a. Of the $1,290,000.00 referred to in paragraph 1 herein, $300,000.00 represents a final payment against the claim of contents, including actual cash value and all replacement cost entitlements,

b. Actual cash value of the building claim is agreed to at $2,850,000.00. Advance payments have already been made against this claim in the amount of $1,860,000.00. Payment in the amount of $990,000.00 of the $1,290,000.00 referred to in paragraph 1 herein represents a top up payment to fully fund the actual cash value settlement of the buildings;

c. Replacement cost of the building is agreed to as follows:

i. $6,900,000.00 for the replacement cost of the destroyed north portion of the building and;

ii. $700,000.00 for the replacement cost of the repairs to the damaged south portion of the building;

d. The insured/plaintiff shall only be entitled to recover the difference between the actual cash value payments made and the total replacement cost agreement by complying with the policy provisions dealing with replacement. The recoverable depreciation entitlement will be the lesser of the amount actually incurred for replacement and the agreed upon settlement of replacement cost value with credit being given for the actual cash value payments made;

e. The actual cash value (ACV) amount of $2,850,000.00 referred to in paragraph 2(b) and the amounts of recoverable depreciation entitlement ($4,750,000.00) are further broken down as follows:

i. Partial loss (south) section of the building $282,894.74 represents the ACV amount with recoverable depreciation entitlement being $417,105.26 ($700,000.00 – $282,894.74).

ii. The total loss (north) section of the building $2,567,105.02 represents the ACV of the loss with recoverable depreciation entitlement being $4,332,894.80 ($6,900,000.00 – $2,567,105.20).

f. Should the insured/plaintiff proceed to replace the building at a different site, the insured/plaintiff shall account to the insurer/defendant for the land acquisition costs of the replaced building. For greater clarity and by way of example, if the Insured/plaintiff purchased an existing building for $10,000,000.00 and the value of the land was $4,000,000.00 the replacement cost expended for the purpose of claiming replacement cost benefits pursuant to this settlement would be $6,000,000.00. Also by way of example, If the insured/plaintiff bought vacant un-serviced land for $1,000,000.00 and then expended $2,000,000.00 servicing the land and $7,000,000.00 constructing the building, the replacement cost expenditure would be $9,000,000.00. These examples are not intended to be exhaustive, but only illustrative of the spirit and intent of the settlement;

g. In the event that there is no agreement with respect to the land value, such value shall be determined through the appraisal process as provided for in the policy and Insurance Act;

h. In order for the insured/Plaintiff to be entitled to recoverable depreciation under this settlement such replacement must be completed with like kind and quality and for similar occupancy as the insured buildings. The insured/Plaintiff agrees to submit their proposal for replacement to the Insurer/Defendant for agreement as to whether the proposed replacement falls within the requirements of the policy;

i. In repairing or replacing the building the recoverable depreciation entitlement will not be based on a line by line comparison between the repair estimates used in calculating the replacement cost amounts set out in paragraph 2(c) and the replaced/repaired building, but shall be based upon how much the insured/Plaintiff is spending on a global basis to repair/replace the building(s) (subject to the replacement cost provision outlined in this agreement) and whether the proposed repair/replacement is of like kind and quality and for similar occupancy as the insured buildings; and

j. The insured/Plaintiff will have 24 months from the date of settlement to proceed with replacement in accordance with the policy and claim and the recoverable depreciation entitlements under this settlement failing which the insured/plaintiff will be deemed to have forever waived and forfeited any claim on the policies or under this settlement for recoverable depreciation. Proceeding with replacement shall be deemed to have occurred when the Insured/Plaintiff has entered into a legally binding construction contract for a building qualifying as replacement and has commenced construction;

k. In the event the Insured/Plaintiff elects to replace, the insurer/defendant shall reasonably cooperate with the retained general contractor for reasonable construction draws in order to facilitate the financing of the replacement;

l. Should the Insured/Plaintiff elect to replace by purchasing another building qualifying as replacement under the policy, the recoverable depreciation entitlement shall be released to the Plaintiff’s solicitors upon the insurer/Defendant being served with the executed purchase agreement. Such funds will be held by the insured’s/Plaintiff’s solicitor pending closing of the real estate purchase. Should the real estate purchase not close the recoverable depreciation advanced shall be returned to the Insurer/Defendant;

Appendix B

May 1, 2015 Letter from Intact’s Counsel to Champion’s Counsel

I write to confirm that we have reached settlement of the outstanding issues regarding the building loss claim on the basis of a further payment of $3 million. The settlement is subject to:

1. The closing of the purchase of the properties at 88 - 90 Dynamic Drive in accordance with the Agreement of Purchase and Sale dated February 17, 2015 reflecting a purchase price of $7,450,000.00, subject to the usual adjustments on closing.

2. The Plaintiff/Insured will be expected to sign a Full and Final Release in usual form releasing the Defendant/Insurer from all building loss claims. (This settlement does not impact the outstanding business interruption claim as per the Settlement Agreement.)

3. The Plaintiff/Insured together with yourself will be required to execute a sworn Declaration confirming that the purchase price represents the amount paid to complete the purchase and there are no side deals, oral or written, trusts or any other type of agreement which could in any way constitute a reversion or reduction of the amount represented by you and the Plaintiff/Insured as the purchase price.

4. The Plaintiff/Insured will be obligated to provide to the Defendant/Insurer a copy of the closing documentation confirming closing of the transaction and indicating the exact amount paid for the purchase. Should the purchase price turn out to be less than represented then the amount payable by the Defendant/Insurer will be reduced by the amount to which the purchase price is less than $7,450,000.00.

Can you please advise who the settlement draft should be payable to. As you are aware, the Public Adjuster is asserting a claim on this money and has notified us accordingly. If the Public Adjuster is not going to be named on the settlement draft I will need either a Release from them or their signature on a payment Direction. I know you are aware of this issue and have been dealing with it.

I will forward to you early next week a draft Release.

[1] The May 6, 2013 settlement is reproduced in full in Appendix ‘A’.

[2] The body of this May 1, 2015 letter is reproduced in Appendix ‘B’.

[3] The appeal record reveals that Champion and the vendor entered into a third agreement for the purchase of the Scarborough property dated June 26, 2015. Neither the parties nor the motion judge have treated that agreement as significant.

[4] This is the second issue raised in Champion’s cross-appeal.