2020 ONSC 238
DIVISIONAL COURT FILE NO.: DC 18-003
DATE: 2020-01-14
ONTARIO
DIVISIONAL COURT
SUPERIOR COURT OF JUSTICE
B E T W E E N:
Lundy’s Regency Arms Corp. and 1519481 Ontario Inc.
P. Mahoney, for the Applicants
Applicants
- and -
Potato Factory Bar & Grill Corp. and Michael Mikhail
G. Di Biase, for the Respondent Potato Factory Bar & Grill
Michael Mikhail, self-represented
Respondents
HEARD at Welland: January 13, 2020
The Honourable Mr. Justice J. R. Henderson
DECISION ON MOTION FOR LEAVE TO APPEAL
[1] The applicants bring this motion for leave to appeal to the Divisional Court from the order of Justice Ramsay [the “applications judge”] decided at Welland, Ontario, on September 5, 2018, whereby the applications judge declined to make a costs order in favour of the applicants despite the fact that the applicants were the successful parties on the application.
[2] The applicants are the owners of a commercial property on Lundy’s Lane in Niagara Falls, Ontario. The corporate respondent [hereinafter called “the Potato Factory”] was a tenant who leased a restaurant on the property from the applicants. The individual respondent, Michael Mikhail, was a guarantor under the lease.
[3] After a dispute arose between the parties the respondents commenced an action in the Superior Court of Justice in Barrie [the “Barrie action”] whereby the respondents claimed damages against the applicants for, among other things, misrepresentation, breach of fiduciary duty, and breach of contract. The Potato Factory also commenced a Small Claims Court action in Barrie [the “second Barrie action”] against the applicants for damages arising out of the lease. The issues that constitute the subject matter of the two Barrie actions were not before the applications judge in Welland.
[4] Thereafter, in August 2018, the applicants commenced the subject application under the Commercial Tenancies Act in Welland [the “Welland application”]. The Welland application was heard by the applications judge on September 5, 2018, and the applications judge gave oral reasons for his decision on that day.
[5] In the Welland application the applicants alleged that the Potato Factory was in default of rent and requested an order terminating the tenant’s occupancy, an order permitting the applicants to take possession of the property, and a writ of possession. In its responding material the Potato Factory did not dispute that it was in default of payment of rent, but alleged that there were outstanding issues between the landlord and tenant that had not been resolved and that could give rise to a damages claim.
[6] In oral reasons the applications judge stated “There is no dispute that the tenants have not paid rent. Whatever the terms of the lease, the landlord has the right to enter and take possession…” The applications judge accordingly declared that the applicants were entitled to re-enter the premises and granted a writ of possession to issue on September 10, 2018. The applications judge recognized that the tenants “have arguable claims for damages” but that none of those claims would allow the tenants to remain in possession without paying rent. The applications judge went on to state “The remaining issues can be dealt with in the outstanding action brought by the tenants or in another action in contract.” For the purpose of this motion, I accept that the applicants were the successful parties on the Welland application.
[7] The applications judge then gave oral reasons on the issue of costs. His reasons, in total, were as follows: “I think enforcement of the costs provision of the lease would not be conscionable in the circumstances. A sophisticated landlord has taken advantage of a relatively unsophisticated small business and the entire affair has ended in a disaster for the tenant but not for the landlord. For oral reasons I make no order as to costs.”
[8] It is the position of the applicants that there are strong grounds to believe that the applications judge erred in principle by denying costs to the successful party in the absence of exceptional circumstances, and therefore leave to appeal the costs order should be granted. The respondents submit that the applications judge properly exercised his discretion with respect to costs, and that leave should not be granted.
ANALYSIS
[9] In the present case the lease provides that the tenant is responsible for the landlord’s costs on a solicitor/client basis regarding any successful application brought by the landlord for recovery of possession of the premises. Regardless of any particular term of the lease, I accept that the applications judge had a broad discretion with respect to costs pursuant to s.131 of the Courts of Justice Act. It is clear that the applications judge purported to exercise that costs discretion by denying the applicants their costs of the successful application.
[10] Regarding the present motion for leave to appeal, I accept that leave to appeal a costs order will not be granted save in obvious cases where the party seeking leave convinces the court that there are “strong grounds upon which the appellate court could find that the judge erred in exercising his discretion.” See the decision in McNaughton Automotive Ltd. v. Co-operators General Insurance Co., 2008 ONCA 597, 95 O.R. (3d) 365 [OCA] at para. 24.
[11] The case law suggests that a successful party is not entitled as of right to its costs, but that a successful party is entitled to a reasonable expectation that it will receive an order for payment of its costs unless there are special or exceptional circumstances. See the decision in Bell Canada v. Olympia & York Ltd., 17 O.R. (3d) 135 [OCA] at page 11.
[12] Therefore, in the present case it was open to the applications judge to deny a costs order in favour of the applicants if the applications judge found that there were special or exceptional circumstances. It does appear as if the applications judge purported to find that there were exceptional circumstances as he stated that costs “would not be conscionable in the circumstances”. The difficulty is that the applications judge did not specify what he meant by the phrase “in the circumstances.”
[13] In my view it is reasonable to interpret that phrase to mean that the applications judge relied upon the circumstances that form the subject matter of the outstanding allegations of the respondents in the two Barrie actions, namely that the landlord made misrepresentations to the respondents and that the landlord breached its duty to the respondents. I accept that the landlord has denied those allegations, and that the issues raised by those allegations remain unresolved.
[14] Significantly, in giving oral reasons on the substantive aspect of the Welland application the applications judge stated that he was only dealing with the narrow issue of the landlord’s right to possession based upon default in payment of rent. The applications judge specifically stated that the remaining issues will be dealt with in the outstanding action.
[15] Therefore, it appears as if the applications judge instructed himself that certain factual issues were not before him, and then the applications judge relied upon his view of those factual issues when he decided to deny costs to the successful party on the application. If so, there are strong grounds for the appeal of this costs order.
[16] For these reasons, leave is hereby granted to the applicants to appeal the costs order of the applications judge dated September 5, 2018. Costs of this motion are reserved to the panel of the Divisional Court that hears the appeal.
Henderson J.
Released: January 14, 2020