Court File and Parties

COURT FILE NO.: 186/08

DATE: 2008-06-04

SUPERIOR COURT OF JUSTICE - ONTARIO

DIVISIONAL COURT

RE: MEGA INTERNATIONAL COMMERCIAL BANK (CANADA)

Appellant

• and -

1471556 ONTARIO LTD. carrying on business as “ASIAN FARM’ and 2112903 ONTARIO INC. carrying on business as “ASIAN FOOD MART SPADINA”

Respondent

BEFORE: HIMEL J.

COUNSEL: Christopher A. Smart, for the Appellant, 1471556 Ontario Ltd.

David Goodman, for the Respondent, Mega International

E N D O R S E M E N T

[1] 1471556 Ontario Ltd. applies for leave to appeal the order of D.A. Wilson J. dated April 11, 2008 in which she imposed terms of an adjournment of a motion to July 4, 2008. In the main application, the mortgagee Mega International seeks a declaration that the appellant is an over-holding tenant of the property and is in breach of the lease, an order of possession with leave to issue a writ of possession and a request for the payment of arrears. The appellant was ordered to pay $74,555.50 by April 25, 2008 at 5:00 p.m. and $17,354.33 by April 15, 2008 and $17,354.33 for the months of May and June as terms of the adjournment.

FACTUAL BACKGROUND:

[2] The appellant 1471556 Ontario Ltd. carrying on business as “Asian Farm” is a tenant of the property at 241 and 247 Spadina Avenue in Toronto. The original lease was assigned to Asian Farm in April 2001 with the consent of the landlord. As of October 2005, Asian Farm was paying a monthly rent of $17,354.33 under a lease with an expiry date of January 31, 2006. On March 17, 2005, Asian Farm exercised its option to renew the lease by delivering a notice of renewal to the solicitors of the landlord. The notice renewed the lease for ten years with a new expiry date of January 31, 2016. The parties never engaged in discussions regarding the market rent for the renewal period so Asian Farm paid the same rent due. During this time, the landlord failed to make certain repairs. Because the landlord was experiencing financial difficulties, the mortgagee exercised power of sale on the property and obtained a writ of possession in September 2007 and took possession on October 11, 2007. Asian Farm remained as a tenant of the property and claims it made a number of the repairs because the landlord failed to do so.

[3] On March 10, 2008, Asian Farm received a Notice of Attornment of Rent from the City of Toronto requesting that all rents be paid to the City for property tax arrears. Asian Farm says it faced competing demands from the mortgagee and the City of Toronto. The mortgagee ultimately took steps to seek the relief of possession and payment of the outstanding rents. The case was before Justice Low who adjourned the matter on terms and before Justice Wilson who adjourned the application on terms to July 4, 2008 for a two hour hearing.

POSITIONS OF THE PARTIES:

[4] The appellant seeks leave to appeal the portion of the decision of Justice Wilson on the motion for adjournment ordering the appellant to pay $74,555.50. The tenant argues that there is good reason to doubt the correctness of the motions judge’s decision as the judge ordered the appellant to make a payment of $74,555.50 without considering the claim for set-off. The basis of the set-off is that Asian Farm says it has incurred substantial expenses for maintenance and repair of the property. Since Mega stepped into the position of the landlord, Mega has been demanding arrears. However, the appellant is entitled to claim set-off against the mortgagee. The appellant argues that the question of payment of $74,555.50 should have been left for hearing on July 4, 2008 when the main application is heard. Asian Farm also takes the position that the question of whether a tenant is entitled to raise set-off against a mortgagee in possession is of general importance to the law of commercial tenancies in Ontario. As the case raises issues of public importance, leave should be granted. Furthermore, Asian Farm takes the position that the decision is in conflict with existing decisions on the same issue.

[5] The respondent Bank points to the history of the case in arguing that the application for leave should be dismissed. At a contested motion on March 6, 2008, Justice Low granted the adjournment to April 29, 2008 on terms and conditions including that $74,555.50 was to be paid to the Bank by March 7, 2008, that the base rent of $17,354.33 be paid by April 1, 2008 with a timetable for materials to be filed and for cross-examinations to take place. No monies were received by the Bank. The parties appeared in triage court and set a date before Justice Wilson. Justice Wilson granted the same relief with additional time to the tenant to pay monies owing for rent and costs. The $17,354.33 payment for April was made and the costs were paid. The sum of $74,555.50 was not paid. The balance of the application was adjourned to July 4, 2008. There has not been an adjudication of the issue of set-off. The respondent argues that the motions judge exercised discretion and imposed terms of an adjournment. The case does not raise issues of general importance and there are no conflicting decisions on point.

ANALYSIS AND THE LAW:

[6] The standard of review to be applied on a motion for leave to appeal an interlocutory order of a single judge of the Superior Court of Justice to the Divisional Court is set out in Rule 62.02(4) of the Rules of Civil Procedure:

(4) Leave to appeal shall not be granted unless,

(a) there is a conflicting decision by another judge or court in Ontario or elsewhere on the matter involved in the proposed appeal and it is, in the opinion of the judge hearing the motion, desirable that leave to appeal be granted; or

(b) there appears to the judge hearing the motion good reason to doubt the correctness of the order in question and the proposed appeal involves matters of such importance that, in his or her opinion, leave to appeal should be granted.

[7] To satisfy Rule 62.02(4)(a), it is not sufficient for the moving party to show that two courts have exercised their discretion to produce different results. The moving party must demonstrate the difference in the principles chosen as a guide to the exercise of such discretion: see Comtrade Petroleum Inc. v. 490300 Ontario Ltd. (1992), 7 O.R. (3d) 542 (Ont.Div.Ct.). With respect to Rule 62.02(4)(b), the grounds for leave to appeal are conjunctive. Good reason to doubt the correctness of the decision does not mean that it is wrong or probably wrong. It is sufficient to show that the correctness of the order is open to very serious debate: see Ash v. Corp. of Lloyd’s (1992), 8 O.R. (3d) 282 (Ont. Div. Ct.); Canadian Egg Marketing Agency v. Sunnylea Foods Ltd. (1977) 3 C.P.C. 348 (Ont. H.C.) at 350. Matters of importance must be general and relate to matters of public rather than private importance or matters relevant to the development of the law and administration of justice: see Rankin v. McLeod, Young, Weir Ltd. (1986), 57 O.R. (2d) 569 (Ont. H.C.) at 575.

DECISION:

Grounds for leave under subule 62.02(4)(b):

[8] Whether to grant an adjournment subject to terms and conditions is a decision involving the exercise of discretion. In this case, the motions judge found that there had not been compliance with the order of Justice Low on March 6, 2008. The motions judge ordered that the case be adjourned for hearing with certain terms imposed and adjourned the application to July 4, 2008. In doing so, she had the history of the case before her and the evidence of non-compliance with the terms imposed in the court order. Frankly, in my view, there is no reason to doubt the correctness of Justice Wilson’s decision. Furthermore, it cannot be said that this case raises issues of public importance to litigants of Ontario.

[9] Accordingly, leave to appeal is refused under subrule 62.02(4)(b).

Grounds for leave under subule 62.02(4)(a):

[10] Counsel takes the position that the case law on the tenant’s right to set-off against a mortgagee in possession is unsettled in Ontario and that there are conflicting decisions. Having reviewed the cases cited, particularly the decision of the Ontario Court of Appeal in 473807 Ontario Ltd. v. TDL Group Ltd. (2005), 47 R.P.R. (4th) 1, 271 D.L.R. (4th) 636, respectfully, I do not agree. In that case, the court ordered that the tenant was entitled to set-off its damages and costs award against its rent payable to the mortgagee as the mortgagee assumed the state of accounts including responsibility for set-off under the plain words of the Postponement and Non-Disturbance Agreement entered into between the parties. No such circumstances exist in the case before me.

[11] For Asian Farm to be successful in pleading legal set-off, it would have to establish that both obligations between the parties are for debts for liquidated sums or money demands which can be ascertained with certainty and the debts are mutual obligations: see Marketing Products Inc. v. 1254719 Ontario Ltd. (200), 142 O.A.C. 61 (C.A.) at paragraph 18. To establish equitable set-off, Asian Farm would have to demonstrate that there was a relationship between the claims of the parties such that the defendant’s claim was so closely connected with the rights of the plaintiff and that it would be unconscionable that the plaintiff be allowed to proceed without permitting a set-off: see Telford v. Holt (1987), 41 D.L.R. (4th) 385 (S.C.C.). While the tenant may not be required to prove its case at this juncture, there must be some evidence supporting its claim for either legal or equitable set-off and not mere allegations. In contrast to 473807 Ontario Ltd. v. TDL Group Ltd., supra, where the tenant already had a judgment in its favour, in this case, the tenant is unable to demonstrate circumstances which, if proven would bring itself under the umbrella of set-off.

RESULT:

[12] For the reasons outlined above, the grounds set out in Rule 62.02(4) are not met. Leave to appeal the decision of D.A. Wilson J. is dismissed. Costs are fixed at $2,825.00 inclusive of disbursements and GST payable to the respondent Mega International forthwith. I do not agree with counsel that costs of this application should be ordered on a substantial indemnity scale. The partial indemnity scale is an appropriate scale unless there are “rare and exceptional circumstances” and the conduct of the party is reprehensible. I deem the amount of $2,825.00 to be fair and reasonable in the circumstances.

HIMEL J.

DATE: June 4, 2008