1286110 Ontario Limited v. College Manning Professional Centre Inc. et al.

[Indexed as: 1286110 Ontario Ltd. v. College Manning Professional Centre Inc.]

78 O.R. (3d) 463

[2005] O.J. No. 4572

Court File Nos. 597/03 and 01-CV-216662CM

Ontario Superior Court of Justice

Divisional Court,

Lane J.

October 25, 2005

Civil procedure -- Discontinuance -- Plaintiff seeking order for dismissal of action with costs against defendant -- Defendant bringing cross-motion for order compelling plaintiff to discontinue action with costs to defendant -- Rule 23.01 not contemplating that party may compel another party to discontinue -- Master erring in granting defendant's cross- motion -- Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rule 23.01.

The plaintiff tenant originally had a lease with a head tenant, which the plaintiff believed to be the owner of the building. When the plaintiff was served with a Notice of Termination stating that the head lease with the registered owners had expired and purporting to terminate the plaintiff's lease, the plaintiff brought an action for a declaration that its lease was binding against the owners. The building was sold to C Inc., and C Inc. was added as a defendant. C Inc. subsequently sold the building, and the plaintiff entered into negotiations with the new purchaser which led to a new lease. The plaintiff brought a motion to have the action dismissed with costs as against the defendants. C Inc. brought a cross- motion seeking an order for the discontinuance of the action by the plaintiff with the payment of C Inc.'s costs. The Master dismissed the plaintiff's motion and granted C Inc.'s cross-motion. The plaintiff appealed.

Held, the appeal should be allowed.

The Master did not have the authority to require the plaintiff to discontinue the action. C Inc.'s cross-motion was ill-founded. Rule 23.01 does not contemplate that another party may compel the plaintiff to discontinue; it is the plaintiff's option.

The plaintiff did not render its own case moot by settling a new lease with the new owner. The claim against C Inc. became moot when C Inc. sold the property. There was no basis for finding that the plaintiff should bear C Inc.'s costs of an action rendered moot by the act of C Inc. On the other hand, C Inc.'s act in selling the property did not constitute misconduct and so did not provide a basis for requiring it to pay costs. Each party should bear its own costs.

APPEAL from an order compelling the plaintiff to discontinue an action with costs to the defendant. [page464]

Cases referred to 1066087 Ontario Inc. v. Church of the First Born Apostolic Inc., [2004] O.J. No. 3068, 1 C.P.C. (6th) 199 (Div. Ct.); Hudon v. Colliers Macaulay Nicolls Inc., [2001] O.J. No. 1588, 147 O.A.C. 163, 11 C.P.C. (5th) 258, 104 A.C.W.S. (3d) 868 (Div. Ct.); Woodheath Developments Ltd. v. Goldman (2003), 2003 46735 (ON SCDC), 66 O.R. (3d) 731, [2003] O.J. No. 3440, 175 O.A.C. 259, 38 C.P.C. (5th) 80, 124 A.C.W.S. (3d) 1073 (Div. Ct.) Rules and regulations referred to Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rules 23.01, 23.05

Fernando Souza, for appellant. Robby Bernstein, for respondent Context (College Manning) Inc.

[1] Endorsement of LANE J.:-- The appellant appeals from the Order of Master Abrams dated September 5, 2003 as clarified on February 3, 2004, requiring the appellant to discontinue this action and pay Context (College Manning) Inc. ("Context") costs fixed in the amount of $20,000 and imposing the condition that a further action will not be brought by the appellant for the same or similar relief.

Background

[2] On October 21, 1998, the appellant and College Manning Professional Centre Inc. ("CMPC") entered into a five-year lease ("Lease") of premises in a commercial building located at 559 College Street, Toronto ("Building"). The Lease included a renewal option of five years for a total term of ten years which option was expressed to be conditional on CMPC renewing its Head Lease of the Building.

[3] The appellant's representatives have asserted that they believed that they were dealing with the owners of the Building. In fact, the Building was leased by CMPC from the actual owners.

[4] On Wednesday, August 29, 2001, the appellant was served with a Notice of Termination that purported to terminate the Lease within seven days, effective on September 4, 2001.

[5] The Notice of Termination stated that CMPC had a Head Lease with the registered owners of the Building: Fleetwood Holdings Limited, Paulrow Investments Limited and Harold A. Stein (collectively "Owners"). The Notice of Termination alleged that this Head Lease had expired on June 1, 2001. In addition, the Notice of Termination stated that the appellant was in default of the Lease.

[6] On or about August 30, 2001, the appellant commenced this proceeding by way of a Notice of Action and brought a motion for an interlocutory injunction to restrain the Owners from interfering with the appellant's leased Premises. As a result of the interlocutory injunction motion, the Owners agreed not to interfere with the appellant's tenancy of the premises. On November 21, 2001, the Owners withdrew the Notice of Termination of the Lease.

[7] On January 30, 2002, Pepall J. ordered the Owners to pay the appellant's costs for the interlocutory injunction fixed in the amount of $2,500 payable forthwith. These costs have not been paid by the Owners. [page465]

[8] The plaintiff, appellant, proceeded with the action seeking:

(1) a declaration that its Lease was binding against the Owners of the Building;

(2) an interim, interlocutory and permanent injunction restraining the defendants from interfering with the appellant's business, with the Leased Premises and terminating the Lease; and

(3) costs of the proceedings.

[9] On March 1, 2002, the Building was sold to Context for a purchase price of $2.5 million. Context was not a party to the proceedings and brought a motion to be added and was added as a defendant. Subsequently, Context served a Statement of Defence and Counterclaim seeking, in part, a declaration that the Lease was terminated, possession of the premises and damages against the appellant of $1 million. The appellant defended the Counterclaim denying that Context had suffered any damages and seeking the dismissal of the counterclaim with costs on a substantial indemnity basis. The original defendant, CMPC, only served a Notice of Intent to Defend and not a Statement of Defence, but the appellant did not note it in default.

[10] On June 12, 2002, at the request of Context's counsel, Molloy J. scheduled the trial of the action and counterclaim for the week of October 28, 2002. On August 1, 2002, a representative of the appellant was examined for discovery by counsel for Context. All the other parties advised that they would be relying on Context's examination for discovery.

[11] On August 30, 2002, Context sold the Building to a new owner, New Downtown Acquisition Corporation ("Downtown") for a purchase price of $4.5 million. Context then advised the appellant that it no longer wished to continue with the proceedings because it had sold the Building.

[12] The appellant entered into negotiations with the new owner, Downtown, with respect to the premises. Downtown was not made a party to the proceedings.

[13] On February 13, 2003, the parties had a telephone case conference wherein counsel advised the Master as to the status of the proceedings, including the settlement discussions with Downtown. The Master made an order directing the appellant's counsel either to "file motion materials re dismissal of claims" if the settlement discussions with Downtown were concluded; or, if the proceedings were to continue, to request a further case conference. [page466]

[14] The appellant and Downtown were able to enter into a new lease for the premises providing for a ten-year term, with a further option to renew for five years.

Motion

[15] The appellant then brought a motion to have the action dismissed with costs as against the defendants.

[16] In response, Context brought a cross-motion seeking, in part, as follows:

An Order for the discontinuance of the action by the plaintiff, with the payment of Context's costs and subject to the condition that a further action will not be brought by the Plaintiff for the same or similar relief.

[17] The Master dismissed the motion of the plaintiff, appellant, for a dismissal with costs and allowed the cross- motion of the respondent. She ordered that the appellant discontinue the action and pay the costs of the respondent. She gave only very sparse reasons:

Order to go as asked in paras. 1 and 3.

Order sought para 2. Costs of the action, inclusive of the motion, are fixed (on a partial indemnity basis) in the amount of $20,000 and are ordered paid to the Defendant Context (College Manning) Inc.

The evidence of Mr. Sternberg (paras. 4-10 of his Affidavit particularly) is persuasive. It is apparent to me that the Plaintiff has received the assignment, given its dealings with a non-party.

(Passage dealing with the unpaid costs omitted)

Standard of Review

[18] The standard of review is that set out by the Divisional Court in Hudon v. Colliers Macaulay Nicolls Inc., [2001] O.J. No. 1588, 147 O.A.C. 163 (Div. Ct.): where a Master's order is a final order, the judge hearing the appeal is entitled to conduct a rehearing and, after according some deference to the Master's expertise in the field, to substitute his or her discretion for that of the Master. I was referred to slightly different formulations in Woodheath Developments Ltd. v. Goldman (2003), 2003 46735 (ON SCDC), 66 O.R. (3d) 731, [2003] O.J. No. 3440 (Div. Ct.) and 1066087 Ontario Inc. v. Church of the First Born Apostolic Inc., [2004] O.J. No. 3068, 1 C.P.C. (6th) 199 (Div. Ct.), two cases decided by single judges sitting in Divisional Court. I prefer to follow Hudon, which was a decision of a three-judge panel and which has been followed in a number of cases. In addition, the sparse nature of the Master's reasons make a rehearing appropriate. [page467]

The Appeal

[19] This appeal is not solely as to the costs of the proceeding. It involves the issue of the authority of the Master to require a party to discontinue an action. The appellant submits that discontinuance is a voluntary act by a plaintiff and cannot be compelled. It has never sought to discontinue since the costs would, under the Rule, be prima facie payable by it to the defendant unless the court orders otherwise. Instead, having obtained the lease which it sought in the action by negotiation with the new owner, it asked for the action to be dismissed.

[20] The respondent submits that the appellant's conduct is in effect seeking a discontinuance, since its motivation in seeking the dismissal is that it has achieved the objective of the action: the preservation of its right to occupy the premises. It does not want to proceed because it has what it wants. This is the "evidence" of Mr. Sternberg to which the Master referred in her reasons. This "evidence" is actually argument to the effect that the plaintiff having received what it wanted, but not from this defendant, the defendant should have its costs.

[21] In my view, the appellant is right: the sense of rule 23.01 Rules of Civil Procedure, R.R.O. 1990, Reg. 194 is that the plaintiff "may" discontinue, before the close of pleadings by a Notice and afterwards by a motion for leave. No such motion by the plaintiff was before the Master; she had a motion to dismiss the action as moot, and a cross-motion to require the plaintiff to discontinue. The cross-motion seems to me to have been ill-founded. The rule does not contemplate that another party may compel the plaintiff to discontinue; it is the plaintiff's option. In an appropriate case, the other party may seek the dismissal of the action, but the presumption as to costs in rule 23.05 will not operate.

[22] There was much discussion before me as to whose responsibility it was that the plaintiff's claim against the defendant Context was now moot. It was submitted that the plaintiff rendered its own case moot by settling a new lease with the new owner. Therefore, it was said, the defendant should have its costs. The Master accepted this argument, stating that the plaintiff had received the "assignment" through dealing with a non-party.

[23] In my view, the analysis on which this conclusion was reached was erroneous. The claim against Context did not become moot because the plaintiff arranged a new lease with Downtown. The claim against Context for the lease extension became moot when Context sold the property to Downtown and so put it out of its power to grant such a lease. The plaintiff had either to sue Downtown or negotiate with Downtown. Wisely, it [page468] chose the latter and obtained a ten-year lease. In these circumstances, there is no basis for finding that the plaintiff should bear the defendant's costs of an action rendered moot by the act of the defendant. On the other hand, the act of the defendant Context in selling the property does not constitute misconduct and so does not provide a basis for requiring it to pay the costs. Each party should bear its own costs.

[24] In the result, the order of the Master is set aside and an order substituted providing that the action is dismissed without costs to any party.

[25] The appellant has been successful and will have its costs of the appeal on a partial indemnity basis. If the parties cannot agree [on] the amount, they may make brief written submissions within 15 days of the release of these reasons.

Appeal allowed.