COURT OF APPEAL FOR ONTARIO DATE: 20230927 DOCKET: C69905

Fairburn A.C.J.O., Feldman and Sossin JJ.A.

BETWEEN

Grasshopper Solar Corporation, Plaintiff (Respondent)

and

Neil Palmer and Michaele Hall, Defendants (Appellants)

Counsel: Chris E. Reed, for the appellants Veronica Tsou, for the respondent

Heard: September 15, 2023

On appeal from the judgments of Justice William S. Chalmers of the Superior Court of Justice, dated March 8, 2021 and August 25, 2021, and the order dated September 27, 2021.

REASONS FOR DECISION

OVERVIEW

[1] This appeal concerns the interpretation and application of termination provisions in a lease agreement.

[2] The respondent, Grasshopper Solar Corporation (“Grasshopper”), operates a business of leasing space on residential rooftops where it then installs solar panels. On August 9, 2012, the appellants, Neil Palmer and Michaele Hall, entered into a 20-year lease agreement with Grasshopper, pursuant to which Grasshopper would pay an annual rent of $700 to the appellants. The energy generated from the solar panels would be sold as part of the Independent Electrical System Operator, Feed-in Tariff Program (the “microFIT Program”).

[3] Under the lease, Grasshopper would provide and install the solar equipment and retain all proceeds from the microFIT Program. Grasshopper installed the solar equipment on the appellants’ roof in November 2013, and the system was connected in December 2013. Shortly after, Grasshopper registered a Notice of Lease on title to the appellants’ property and in October 2015 Grasshopper similarly registered a Notice of Security Interest.

[4] In 2016, the appellants sought to refinance their home. The refinancing required certain documents and the assistance of Grasshopper, given Grasshopper’s security interest registered on the appellants’ home.

[5] The refinancing also required Grasshopper’s security on the house to be postponed, to which Grasshopper agreed. The appellants wrote to Grasshopper seeking reimbursement for the postponement registration fee and a portion of their lawyer’s costs respecting the refinancing process. They stated that, if these amounts were not paid within 5 days, the appellants would take the position that the lease agreement was cancelled. Grasshopper refused to make the payment and stated that the appellants would be in breach of the contract if they improperly terminated. The appellants responded by stating that they were terminating the contract and instructing the Local Distribution Company (“LDC”) to redirect monthly payments for the solar energy to them, rather than Grasshopper.

[6] Grasshopper commenced this action on July 17, 2017, claiming that the appellants breached their contractual obligations under the lease. The appellants defended the action and commenced a counterclaim on August 25, 2017, pleading that the lease was breached by Grasshopper in the first instance.

[7] The motion judge granted summary judgment in favour of Grasshopper, finding that the appellants breached the lease agreement by purporting to terminate the agreement and redirecting payments from the LDC to themselves. The motion judge found that there was no breach on the part of Grasshopper to warrant the appellants’ actions, nor was there any basis in the lease agreement for them to have lawfully terminated the agreement at that point.

[8] With respect to calculating damages, the motion judge initially found insufficient evidence in the record and so scheduled a separate reference on this issue. Following that hearing, the motion judge ordered the appellants to pay $51,356.24 in equitable damages, $2,191.37 in prejudgment and postjudgment interest, and $25,000 in costs (inclusive of both the summary judgment and damages phases of the litigation).

[9] The motion judge calculated these damages based on the amount stipulated in Grasshopper’s lease agreements with other parties (but not the one signed by the appellants) for a buyout of the solar panels. He acknowledged that the parties were not bound to a buy-out condition but nonetheless concluded that it would be fair and reasonable in the circumstances to calculate equitable damages on this basis.

ANALYSIS

[10] The appellants raised several grounds of appeal with respect to the summary judgment and damages decisions. At the hearing of the appeal, counsel for the appellants advised that while the appeal of the summary judgment was not abandoned, their oral submissions would focus only on the appeal of the damages decision.

(1) Appeal of the Summary Judgment

[11] Prior to considering the appellants’ grounds of appeal against the summary judgment decision, it is necessary to address Grasshopper’s position that the appeal is late and should not be considered. The appellants served their notice of appeal at the end of September 2021 within 30 days of the decision on damages, discussed below. According to Grasshopper, the appellants acknowledge that they appealed from the decision of the motion judge dated March 8, 2021, and therefore were beyond the 30-day time period for serving a notice of appeal set out in r. 61.04(1) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194.

[12] We reject this submission. It was appropriate for the appellants to wait until after the damages decision before deciding to appeal the motion judge’s orders both on the summary judgment and damages. Grasshopper also objects to the appellants’ appeal of the damages decision on related timing grounds, which is addressed below.

[13] Turning to the appellants’ grounds of appeal, as set out in their written submissions, we do not see merit in their summary judgment appeal.

[14] The appellants raise two grounds of appeal relating to the summary judgment decision: first, that the lease agreement is void for being illegal or against public policy; and second, that the motion judge erred in his interpretation of the lease agreement.

[15] With respect to the first issue, the appellants contend that the lease was illegal or contrary to public policy as it represented an effort by Grasshopper to circumvent and profit from the microFIT program for which it did not qualify, and therefore the lease was void, voidable, and/or not enforceable.

[16] The motion judge did not address this issue as it was not raised by the appellants, who represented themselves before the motion judge.

[17] Grasshopper argues that, as this issue was not raised before the motion judge, it would be inappropriate to consider this ground of appeal before this court.

[18] It is not necessary to address whether the appellants should be permitted to raise fresh issues now that they are represented on appeal pursuant to the discretion recognized in Kaiman v. Graham, 2009 ONCA 77, 75 R.P.R. (4th) 157, at para. 18. In this case, the failure to raise the issue below means that the record is insufficient to make any determination relating to potential improper motives or conduct on Grasshopper’s part in relation to the microFIT program. Therefore, we decline to consider this argument.

[19] With respect to the second issue, the appellants argue that the motion judge failed to take into consideration the surrounding context of the lease, and in particular the unequal bargaining power between Grasshopper and the appellants.

[20] The motion judge’s interpretation of the lease is entitled to deference: Deslaurier Custom Cabinets Inc. v. 1728106 Ontario Inc., 2017 ONCA 293, 135 O.R. (3d) 241, at para. 49, leave to appeal to S.C.C. refused, 37039 (October 19, 2017); and Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, at paras. 50, 52.

[21] The motion judge committed no error in turning first to the written terms of the agreement and applying them to the circumstances of this case: Lloyds Syndicate 1221 (Millennium Syndicate) v. Coventree Inc., 2012 ONCA 341, 291 O.A.C. 178, at para. 16, leave to appeal refused, [2012] S.C.C.A. No. 276. Moreover, while it is true that the lease was offered on a take-it-or-leave-it basis, this neither changes our understanding of the decision below nor rises to the level of an impermissible power imbalance between the parties.

[22] Accordingly, this argument cannot prevail.

[23] The appellants in their factum also raise additional grounds of appeal relating to the motion judge’s interpretation and application of different aspects of the lease. Grasshopper also contends that some of these other grounds relate to issues that were not raised before the motion judge. In our view, all these issues are either raised for the first time on appeal or were dealt with appropriately by the motion judge. Either way, they have no merit.

(2) Appeal of the Damages Decision

[24] We turn now to the decision rendered by the motion judge after the reference on damages, which was the focus of the oral hearing.

[25] As a preliminary matter, Grasshopper raises the issue that the damages decision is time-barred because it was not served within the appropriate deadlines. The appealed-from damages decision was pronounced on August 25, 2021, and its corresponding order was issued on September 27, 2021. The appellants’ notice of appeal specifically appealed the August 25 damages decision. That notice of appeal was served on September 24, 2021, within the 30-day time period. There was no delay here.

[26] The respondent argues that the appellants’ supplementary notice of appeal was late. It was served on November 16, 2021, over a month and a half after a notice of appeal was due on the August 25 damages decision. The supplementary notice of appeal did not add new details concerning the appeal of the damages decision, but it did include a request for an extension of time for the service and filing of the notice of appeal and the supplementary notice of appeal. The respondent takes this request for an extension as evidence that the appeal is late. We do not agree.

[27] There was no question with respect to the appellants intention to appeal within the 30-day timeframe. There was a clear explanation for the supplemental notice of appeal in light of the subsequent September 27, 2021 order by the motion judge, and there no prejudice resulting from the additional period between the original notice of appeal and the supplemental notice. In light of this court’s test for extensions of time, the appellants’ requested extension of time is granted: Paulsson v. University of Illinois, 2010 ONCA 21, at para. 2.

[28] We now turn to the merits of the damages appeal. At the reference, Grasshopper sought damages for the buy-out of the solar equipment in the amount of $41,866.50 as well as repayment of the amount received by the appellants from the LDC after April 2016 in the amount of $30,700.68. The appellants sought orders ending their relationship with Grasshopper and compelling Grasshopper to remove the equipment from their roof. The appellants also raised water damage relating to the solar equipment but did not provide evidence supporting this claim.

[29] After considering the positions of the parties, the motion judge found as follows:

[22] I acknowledge that the calculation of the purchase price of the SGE set out in the subsequent SDLs is not binding on the Defendants. However, it is my view that the Plaintiff’s position that the damages are to be based on the buy-out formula is fair and reasonable for both parties. The buy-out amount reflects the value of the SGE at the time of the breach. The Plaintiff will receive compensation for the expenses incurred in designing and installing the SGE at the Defendants’ property. Following the purchase of the SGE, the Defendants will own the SGE and be entitled to the revenue generated by the equipment. [Emphasis added.]

[30] The appellants argue that it was not open to the motion judge to impose damages that were not rooted in the lease that he had found to be breached.

[31] We agree. It was neither necessary nor justified for the motion judge to impose a buy-out on the parties, and it was an error to do so. While subsequent contracts entered into by Grasshopper include a buy-out provision, that provision was neither negotiated nor agreed to by these parties, it did not form part of the parties’ reasonable expectations, nor is there any independent evidence as to the value of the solar equipment that might inform an equity-based buy-out price.

[32] The appellants now contend that no damages should be awarded to Grasshopper, as no damages have been proven.

[33] We reject this argument. In our view, the damages arising as a result of the appellants’ breach of the lease are to be found in the lease agreement itself. The “Termination and Remedy” provision of the lease states:

22. TERMINATION AND REMEDIES. (a) Upon or after the occurrence of an Event of Default, the non-defaulting party shall give written notice to the defaulting party, setting forth the nature of the Event of Default. If the defaulting party fails to demonstrate within thirty (30) days after receipt of such notice that it has cured the said Event of Default, then the non-defaulting party may terminate this Lease by written notice to the defaulting party. (b) In addition to any other remedies Tenant may have pursuant to this Lease, at law or in equity, if Landlord does not perform any of Landlord’s obligations, Tenant may, at Tenant’s option, (i) perform any of such obligations after the aforementioned thirty (30) day notice and cure period has expired and in such event the cost of performing Landlord’s obligations plus an administrative charge of 15% of such cost shall be payable by Landlord to Tenant forthwith on demand or such amount may be deducted from the Gross Rent payable by Tenant to Landlord or (ii) Tenant may withhold payment of Gross Rent to Tenant.

[34] Therefore, as at the date of breach, Grasshopper was entitled to remove the solar equipment, and any obligations owed by Grasshopper towards the appellants were at an end. Grasshopper, however, forfeited that right by failing to remove the solar panels.

[35] Grasshopper submitted that the motion judge, in effect, found that the appellants had converted the solar equipment by redirecting payments from the LDC to themselves, and therefore, the buy-out remedy was an equitable solution available to the motion judge. On this point, the motion judge stated:

[16] The Defendants converted the SGE [Solar Generating Equipment] to their own use in April 2016. From that date, the Defendants retained the revenue generated from the SGE. Although the Defendants treated the SGE as if they owned it, they did not make any offer to purchase the equipment. The Plaintiff argues that the most equitable way to compensate the Plaintiff for the loss of the equipment and to end the business relationship is for the Defendants to pay a reasonable price to purchase the SGE. Section 22 of the SDL [Solar Development Lease] provides that if the Landlord does not perform any of its obligations, the Tenant has remedies pursuant to the lease, at law or in equity. The Plaintiff argues that it is entitled to calculate its damages using the means the Plaintiff has available to it and is not necessarily confined to the terms of the SDL.

[36] By finding that a buy-out remedy would make the appellants the owners of the equipment, however, the motion judge clearly was not of the view that the appellants were already the owners by virtue of conversion. Further, as set out above, recourse to a remedy beyond the lease was unnecessary and not warranted.

[37] Therefore, because the appellants did not own the solar panels from the date of breach to the damages hearing, the appellants were wrongfully directing payments from the LDC to themselves. By the date of the damages decision, the motion judge accepted that the amount of these payments was $30,700.68.

[38] This sum must be returned to Grasshopper, as the appellants had no claim on these revenues. There is no evidence of any funds that may have been paid after the date of judgment and therefore the damages owing by the appellants are limited to the $30,700.68 sum put before the motion judge, with prejudgment and postjudgment interest at the rates that already have been determined by the motion judge.

[39] As for the solar equipment, at this point it must be treated as abandoned by Grasshopper (and, in any event, counsel for Grasshopper at the damages hearing suggested the equipment was customized for the home and could not be re-used by Grasshopper). Consequently, the appellants are entitled to have it removed at any time, at their expense, or to make use of it. Additionally, Grasshopper must also remove the encumbrances registered on title to the appellants' property.

Disposition

[40] For the reasons above, the appeal is allowed in part. The appeal from the summary judgment decision is dismissed. The appeal from the damages decision is allowed.

[41] As success is mixed, we order no costs on the appeal. Further, as the liability decision of the motion judge is not disturbed by this decision, and no separate costs were ordered on the damages phase of the litigation before the motion judge, there is no need to disturb the order of costs in the court below.

“Fairburn A.C.J.O.” “K. Feldman J.A.” “L. Sossin J.A.”