Court File and Parties

COURT OF APPEAL FOR ONTARIO DATE: 20220112 DOCKET: C69533

Rouleau, van Rensburg and Roberts JJ.A.

BETWEEN

Meridian C C Intl Inc. and Guiyan Xin Plaintiffs/Defendants by Counterclaim (Appellants)

and

2745206 Ontario Inc. Defendant/Plaintiff by Counterclaim (Respondent)

Counsel: Robert S. Choi and Gina P. Rhodes, for the appellants Michael A. Katzman, for the respondent

Heard: January 4, 2022 by video conference

On appeal from the judgment of Justice Frederick L. Myers of the Superior Court of Justice dated May 3, 2021, with reasons reported at 2021 ONSC 3270.

Reasons for Decision

[1] This appeal concerns a termination provision in a commercial lease. Paragraph 11(1) of the lease permits the landlord to terminate the tenancy upon giving 180 clear days’ written notice where the landlord desires to remodel or demolish any part of the rented premises “to an extent that renders continued possession by the tenant impracticable”. It is the interpretation and application of the quoted words that are in issue in this case.

[2] The respondent landlord gave the appellant tenant the requisite 180 days’ written notice to terminate under para. 11(1) of the lease so that it could remodel the premises. The remodeling plan proposed the demolition of the garage, the remodelling of the main floor into two separate units, the replacement of windows, wiring and plumbing throughout the premises, and the use of part of the basement for building services and utilities. The appellants (the tenant and its principal) resisted the termination. They asserted, among other things, that the termination was in bad faith because the respondent had sought to terminate the lease, which had been in existence since 2013, shortly after purchasing the building in which the leased premises were located. They also claimed that the proposed remodelling would not interfere with the operation of the tenant’s business. The retail portion occupied only one half of the main floor of the building, such that the remodelling would not render the tenant’s continued possession “impracticable”.

[3] In the litigation that followed, the respondent moved for summary judgment seeking to enforce the termination. The motion judge found that the planned renovations were bona fide and that the premises as described under the lease would cease to exist because of the planned renovations. As a result, he concluded that continued possession by the tenant was impracticable. He rejected as irrelevant the issues surrounding the evolution of the landlord’s plans and whether the tenant could possibly remain in part of the premises during renovations because, as he explained, “the proposed remodeling and demolition deprive the tenant of substantial portions of the “Premises” defined under the lease”. He determined that the respondent properly gave notice to terminate the lease in accordance with the parties’ bargain. He dismissed the appellants’ action and allowed the respondent’s counterclaim to terminate the lease, with costs to the respondent in the amount of $75,000.

[4] The appellants raise several grounds of appeal. To dispose of the appeal, it is necessary to resolve only the issue of whether the motion judge erred in construing para. 11(1) of the lease too narrowly and in isolation from the other provisions of the lease.

[5] For the reasons that follow, we agree that the motion judge made reversible errors of law in his interpretation of the lease, and we allow the appeal.

[6] It is helpful to begin our analysis with the standard of review. The motion judge’s interpretation of the parties’ lease agreement, including its factual matrix, would ordinarily attract a deferential standard of appellate review: Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, at paras. 50-52. Absent an extricable question of law, which courts should be cautious in identifying, or palpable and overriding error, appellate intervention is not warranted: Sattva, at paras. 53-54.

[7] An extricable question of law includes a legal error made in the course of contractual interpretation 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: Sattva, at para. 53. Moreover, a failure to consider the contract as a whole, by focussing on one provision without giving proper consideration to other relevant provisions, can also be an error of law: Fuller v. Aphria Inc., 2020 ONCA 403, 4 B.L.R. (6th) 161, at para. 50; Resolute FP Canada Inc. v. Ontario (Attorney General), 2019 SCC 60, 444 D.L.R. (4th) 77, at paras. 26-27, 30 and 32-34. Finally, in Ventas, Inc. v. Sunrise Senior Living Real Estate Investment Trust, 2007 ONCA 205, 85 O.R. (3d) 254, at para. 24, this court emphasized that a commercial contract should be interpreted “as a whole, in a manner that gives meaning to all of its terms and avoids an interpretation that would render one or more of its terms ineffective”. In our view, the motion judge made these errors of law in his analysis of the lease.

[8] The motion judge was required to consider whether it was “impracticable” in this case for the landlord to carry out the proposed remodelling while the tenant continued in possession. This was a fact-specific exercise for the motion judge to undertake based on his interpretation of the particular lease and the evidence in the record before him: Kinglip Holdings Inc. v. Novak Graphics Inc., [2000] O.J. No. 3723 (S.C.), at para. 12.

[9] However, the motion judge erred by focussing too narrowly on the definition of the leased premises and the results of the proposed renovations. This was a flawed approach. Instead of giving effect to para. 11(1) in its entirety, the motion judge’s approach would give rise to the unintended and commercially unreasonable result that any change which reduces the area of the leased premises would allow the landlord to terminate the lease. The motion judge’s approach further caused him to interpret para. 11(1) of the lease in a manner that was inconsistent with the whole of the parties’ agreement. Most notably, the motion judge’s narrow interpretation would untenably permit the landlord to terminate the lease in order to make alterations, such as partitioning the main floor, and lease parts of the leased premises to other tenants when, with the approval of the landlord, the tenant is permitted to carry out the same kinds of alterations and sublet parts of the premises under paras. 4 and 7 of the lease.

[10] As a result of these errors, the motion judge failed to determine the principal question that he had to decide, namely, the question of whether the proposed renovations rendered continued possession by the tenant impracticable. Accordingly, whether the tenant could remain in possession and continue its operation in part of the premises during the renovations were relevant questions, among others, that the motion judge should have determined.

[11] It is not appropriate for this court, on the available record, to make the factual findings to determine these issues. Accordingly, we set aside the dismissal of the action and the judgment in the counterclaim, such that the action will continue in the Superior Court.

[12] While not strictly necessary to dispose of this appeal, it will be of assistance to the parties going forward for us to address the appellants’ argument concerning the motion judge’s treatment of the opinion offered by the appellants’ construction witness, Tim Clarke. We see no error in the motion judge declining to accept Mr. Clarke’s opinion evidence. As the motion judge rightly noted, the appellants did not seek to qualify him as an expert. Mr. Clarke was not a fact witness but was proffered solely for the purpose of giving opinion evidence. If the appellants wish to adduce Mr. Clarke’s opinion evidence in this action, they will have to comply with the requirements respecting experts under the common law and the Rules of Civil Procedure, R.R.O. 1990, Reg. 194.

Disposition

[13] Accordingly, we allow the appeal. The judgment and the costs order are set aside.

[14] The appellants are entitled to their partial indemnity costs of the appeal in the amount of $15,000, inclusive of disbursements and applicable taxes.

[15] As this matter is not finally determined, it is appropriate to reserve the disposition of the summary judgment motion costs to the judge who finally disposes of this action.

“Paul Rouleau J.A.”

“K. van Rensburg J.A.”

“L.B. Roberts J.A.”