COURT FILE NO.: CV-11-418007
DATE: 2012/05/08
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
DESIGNER COLLECTION SALES INC.
Plaintiff
Lee Samis and John Bradbury, for the Plaintiff
- and -
161 SPADINA INC.
Defendant
Michael Burgar, for the Defendant
HEARD: February 23, 2012
Grace J.
A. The Context
[1] On January 19, 2009, a frozen water pipe burst in an unoccupied upstairs unit at 161 Spadina Ave., Toronto (the “premises”). Water flowed downward into Designer Collection Sales Inc.’s clothing store (“Designer” or “Tenant”). The store and its contents were damaged.
[2] Designer’s business could not operate until remedial steps were taken. It maintains the damage resulted from its landlord’s negligence or breach of contract.
[3] Designer had obtained property insurance from Dominion of Canada General Insurance Company (“Dominion”). Designer recovered more than $600k under the policy.
[4] In this action, Designer seeks damages from its landlord 161 Spadina Inc. (“161” or “Landlord”) in respect of lost or damaged inventory, equipment and tenant improvements, losses incurred as a result of the interruption of its business and various fees and expenses. It is acknowledged that Dominion is advancing a subrogated claim.[^1]
[5] 161 seeks summary judgment pursuant to rule 20.04 (2) of the Rules of Civil Procedure.[^2] The landlord relies on paragraph 11 of an undated Commercial Lease (the “Lease”). It provides:
The Landlord is not liable for any damage to the Tenant’s property or for any injury to any person in or coming to or from the Premises, however caused, and the Tenant agrees to indemnify the Landlord against the financial consequences of any such liability. In this regard, the Tenant shall purchase and maintain public liability insurance in the amount of no less than one million dollars ($1,000,000) and shall provide proof of this insurance to the Landlord on request.[^3]
[6] 161 maintains the clause clearly and unambiguously transfers the risk of damage or loss to Designer, even if attributable to 161’s fault or neglect. In other words, 161 submits Designer agreed not to seek damages from 161 even if they resulted from the Landlord’s negligence or failure to fulfill its obligations under the Lease. It says that the tenant has lost its right to sue and that Dominion is therefore precluded from asserting a subrogated claim.
[7] Designer argues that paragraph 11 has no such effect whether read in isolation or in the context of the entire Lease. It maintains that the language used is not sufficient to insulate 161 from responsibility for maintaining the pipe(s) that burst.[^4] Designer says the quoted clause was intended to relate to risks covered by public liability rather than property insurance. The Tenant also submits 161 relies on language which is exculpatory in nature and therefore is to be narrowly construed. Designer says the clause does not have the far reaching effect 161 advocates.
B. Analysis and Decision
[8] In argument, the parties agreed that the Court is in a position to determine whether paragraph 11 of the Lease prevents recovery by the Tenant.
[9] The parties’ desire for a summary determination of the issue is one I have attempted to bear in mind. However, I am not bound by that agreement. As is apparent from rule 20.04(2) (b), summary judgment can only be granted if the court is satisfied there is no genuine issue requiring a trial.[^5]
[10] Mr. Burgar says the hopelessness of Designer’s case is demonstrated by a number of authorities interpreting analogous lease provisions.
[11] For example, in Cummer-Yonge Investments Ltd. v. Agnew-Surpass Shoe Stores Ltd. (“Cummer-Yonge”)[^6] the lessor agreed to insure a shopping centre “against all risk of loss or damage caused by or resulting from fire”. A policy was obtained which provided coverage even if a fire resulted from negligent conduct.
[12] The building occupied by Agnew-Surpass was heavily damaged by a fire caused by the negligence of one of its employees. A claim was made by the lessor to its insurer and paid. Thereafter, the insurer pursued a subrogated claim against the lessee.
[13] The majority of the Supreme Court of Canada concluded the lessor had agreed to obtain insurance coverage “covering negligence whether of the insured himself or of his servants or of third parties.” [Italics added]
[14] Writing for the majority, Pigeon J. then considered the position of the insurer. He wrote:
An insurer is entitled not to be deprived of the benefit of subrogation without his consent. Of course, this consequence can be avoided either by the insurer contracting to insure the tenant’s interest as well as the owner’s or by the insurer waiving subrogation. The necessity of such a special stipulation to avoid undesirable consequences is an added reason for not lightly construing an exculpatory clause as releasing a tenant from negligence.[^7]
[15] In Cummer-Yonge the insurer had expressly agreed that it would have no right of recovery against any third party the landlord had agreed to hold harmless. The majority concluded that the contractual language negotiated by the lessor and lessee was sufficient to insulate the lessee from liability for property damage even though it was attributable to the lessee’s negligence. However, the wording was insufficient to shield it from liability for the lessor’s loss of rental income.
[16] A similar issue arose in Ross Southward Tire Ltd. v. Pyrotech Products Ltd.[^8] A leased building was destroyed by a fire caused by the lessee’s negligence. The lessor’s insurer unsuccessfully pursued a subrogated claim against the lessee.
[17] The action failed because the lessee had fulfilled its contractual obligation to reimburse the lessor for fire insurance premiums. The majority of the Supreme Court of Canada concluded the tenant was entitled to benefit from the policy for which it had paid.
[18] These and other cases illustrate variations on two basic scenarios: first, a lease may contain an express covenant obligating one party to obtain property insurance for the benefit of the lessor and lessee or second, the lease may not go that far but, instead, require one party to reimburse the other for the cost of such insurance.
[19] The decisions that have been rendered establish this principle: contractual language may create an overwhelming obstacle to recovery against a negligent party whether the claim is asserted directly or on a subrogated basis.[^9] An action will fail to the extent a lease expressly or by necessary implication obligates the innocent party to obtain insurance which covers the risk and claims in issue.[^10]
[20] I turn to the contract negotiated by the parties to this action. Including the space for signature, the Lease is four pages in length. It is not augmented by any of the wording set forth in the Short Forms of Leases Act because the Lease contains no reference to that statute.[^11]
[21] No criticism is intended. The parties were entirely free to reach the bargain they did. In fact, the scope and limitations of the language used seem apparent.
[22] While quoted earlier paragraph 11 of the Lease is set forth again for ease of reference. It reads:
The Landlord is not liable for any damage to the Tenant’s property or for any injury to any person in or coming to or from the Premises, however caused, and the Tenant agrees to indemnify the Landlord against the financial consequences of any such liability. In this regard, the Tenant shall purchase and maintain public liability insurance in the amount of no less than one million dollars ($1,000,000) and shall provide proof of this insurance to the Landlord on request.
[23] In this case, the Lease simply does not lead to the conclusion that 161 is entitled to claim the benefit of the property insurance policy Designer arranged. The Lease mentions insurance only once. It requires Designer to “purchase and maintain public liability insurance”. The Lease does not mention property insurance. Third party liability insurance and insurance against property are not the same.[^12] In Alberta Importers and Distributors (1992) Inc. v. Phoenix Marble Ltd. (“Alberta Importers”)[^13] the Alberta Court of Appeal explained:
The former covers claims by third parties and benefits the landlord. If the tenant’s negligence injures a third party, the tenant’s liability insurance indemnifies the landlord against such claims which the property insurance would not cover. The policy also protects the landlord against claims for joint and several liability and protects against an insolvent tenant.[^14]
[24] In Alberta Importers, the Alberta Court of Appeal concluded the parties had split the obligation to insure: the lessor was required to obtain property insurance and the lessee liability insurance.
[25] The evidence in this case supports the conclusion the parties turned their mind to public liability insurance alone. Designer obtained various kinds of insurance through Dominion. They included commercial general liability insurance as the Lease required. Designer also obtained property insurance which the Lease did not.
[26] In my view, 161 is not insulated from liability simply because Designer obtained property insurance. There must be an underlying contractual obligation in the Lease to do so.[^15]
[27] My conclusion is reinforced by the fact the Tenant’s obligation to insure appears immediately after language obligating Designer to indemnify 161. On its face the obligation to indemnify seems to refer to damage to Designer’s property and injuries to anyone accessing Designer’s store. However, such an interpretation would be incorrect. In Salmon River Co. v. Burt Bros.[^16] Rand J. explained the purpose of an indemnity:
We do not "indemnify and save harmless" from or against our own claims or for damage done to us by others. To give them that effect would be to interpret them as an anticipatory release or a declaration that no claims would arise or could be made... But this familiar phrase must be given its well established meaning. To indemnify and save harmless is to protect one person against action in the nature of claims made or proceedings taken against him by a third person, and it would distort that plain meaning to attribute any other signification to it.[^17]
[28] Clearly, Designer had an obligation to indemnify 161 in respect of any claim made by third parties accessing its store. Designer’s contractual duty was to arrange insurance to protect 161 from those claims. That portion of paragraph 11 of the Lease went no further. Designer did not have and could not have had a responsibility to indemnify 161 for damage the Tenant suffered.
[29] However, paragraph 11 of the Lease does not deal exclusively with insurance. It also provides that “[t]he Landlord is not liable for any damage to the Tenant’s property…however caused”. Does that wording preclude recovery?
[30] In Tercon Contractors Ltd. v. British Columbia (Transportation and Highways) (“Tercon Contractors”),[^18] Binnie J. set forth the analytical approach to be followed when examining an exclusion clause.[^19] The analysis involves three questions: first, as a matter of construction does the clause apply to the fact situation in issue; second, if so, was the clause unconscionable at the time the contract was made and third, if the language is applicable and otherwise enforceable, has the person seeking to avoid the clause established some overriding public policy consideration that should cause the court to refuse to enforce it?[^20]
[31] Contractual provisions are to be interpreted “in harmony with the rest of the contract and in light of its purposes and commercial context”.[^21] A contract can exclude liability for breach of contract. It can even eliminate responsibility in negligence without an express reference to it.[^22] As Pigeon J. wrote:
All that is required is that the intention be adequately expressed.[^23]
[32] The principles are not difficult to discern. The problem in this case is their application. I am simply not satisfied I can determine the scope of the exculpatory language on the limited record before me.
[33] No evidence was led by anyone involved in the formation of the Lease. I know precious little about the commercial context in which it was negotiated.
[34] I know very little about the location of the leak. It appears to be accepted that it occurred in the sprinkler system two floors above Designer’s store. However, I was given no other details.
[35] For that reason, I cannot tell whether any of the other covenants found in the Lease apply. For example, paragraph 8 places responsibility on the Landlord for structural repairs and improvements. Paragraph 7 of the Lease says the Landlord is responsible for “Fixing all leaks from radiators”. It continues:
Any leaks caused by the radiator is (sic) solely the landlords (sic) responsibility including all costs and replacing any damage caused by the leak.[^24]
[36] Where was the pipe that burst? Was it entirely separate from a “radiator”? The sprinkler and radiator systems may well be entirely distinct. However, no evidence was introduced on the point and I simply do not know.
[37] How can the court determine whether the words “however caused” preclude recovery for the loss occasioned when I know nothing about the cause of the leak? I cannot say if it was innocent or wilful, avoidable or unavoidable.
[38] The claim asserted by Designer is founded in negligence and breach of various covenants contained in the Lease. Overriding public policy considerations may cause the court to decline to enforce an apparently binding exclusion clause.[^25] How can one expect the parties – or the court - to address that aspect of the analysis from a factual or legal perspective when affidavits of documents have not even been exchanged? There have been no examinations for discovery. The evidence filed on the motion was extremely limited.
[39] Furthermore, I am not even in a position to conclude that the words “however caused” apply to the portion of paragraph 11 of the Lease that refers to Designer’s property. The placement of the quoted phrase in the first and the wording of the second sentence of paragraph 11 lead me closer to the conclusion those words relate to “injury to any person” and not property damage.
[40] I am even further away from concluding paragraph 11 of the Lease has anything to do with Designer’s claim to losses arising from the interruption of its business.[^26] That is an important limitation. A substantial portion of Dominion’s payment to Designer related to that head of damages.
[41] In short, I do not feel able to answer the basic question of whether the exclusionary language applies to the circumstances of this case.[^27] Consequently, I cannot consider the other two stages of the analysis Tercon Contractors describes.
[42] The scope and application of the exculpatory language in the Lease raises genuine issues that cannot be resolved at this stage and on this record.
C. Conclusion and Costs
[43] For the reasons given, 161’s motion for summary judgment is dismissed.
[44] If the parties cannot resolve the issue of costs, brief written submissions not exceeding four pages in length excluding dockets, authorities and any offer to settle may be provided to me through Judges’ Administration, Court House, 12th Floor, Unit K, 80 Dundas Street, London, Ontario, N6A 6B2. Designer is asked to deliver its submissions by May 24 and 161 by June 7, 2012.
“Justice A. D. Grace”
Grace J.
Released: May 8, 2012
COURT FILE NO.: CV-11-418007
DATE: 2012/05/08
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
DESIGNER COLLECTION SALES INC.
Plaintiff
- and –
161 SPADINA INC.
Defendant
REASONS FOR JUDGMENT
Grace J.
Released: May 8, 2012
[^1]: The plaintiff relied on an affidavit of a law clerk, Megan Sloat, sworn February 17, 2012. According to Ms Sloat this action relates “predominantly, though not entirely, [to] a subrogated claim being advanced by” Dominion. [^2]: R.R.O. 1990, Reg. 194 as amended. [^3]: The term expired January 15, 2009. Nothing was done to renew the Lease before expiry. Paragraph 2 of the Lease contemplated a continuation of the arrangement on a month-to-month basis. [^4]: According to Ms Sloat, a line of inquiry led her to believe a sprinkler line above a third floor unit froze and then burst. The defendant relied on an affidavit of David Shimoni who manages the property on behalf of his father. He deposed that the flooding was caused by a “sprinkler pipe failure”. An Emergency Incident Report says the Toronto Fire Services responded to a “ruptured water, steam pipe” call. [^5]: Combined Air Mechanical Services Inc. v. Flesch, 2011 ONCA 764 at para. 41. [^6]: 1975 CanLII 26 (SCC), [1976] 2 S.C.R. 221 [^7]: Ibid. at p. 118. I have not analyzed the first quoted sentence in any detail but do not believe it was intended to be a statement of general principle. I say that because in Cummer-Yonge, the insurer limited its right of subrogation by contract. Furthermore, in Ross Southward, infra note 8 at 39, Laskin, C.J. wrote: The subrogated insurer’s position in this litigation against the tenant is, admittedly, no better than that of the landlord itself. [^8]: 1975 CanLII 25 (SCC), [1976] 2 S.C.R. 35. [^9]: See, too, T. Eaton Co. v. Smith, 1977 CanLII 39 (SCC), [1978] 2 S.C.R. 749; Jarski v. Schmidt, [1987] O.J. No. 1438 (Dist. Ct.); African Caribbean Grocery Inc. v. 732718 Ontario Inc., [2007] O.J. No. 1575; Lincoln Canada Services LP v. First Gulf Design Build Inc., 2007 CanLII 45712 (Ont. S.C.J.) aff’d 2008 ONCA 528; Alberta Importers and Distributors (1993) Inc. v. Phoenix Marble Ltd., 2008 ABCA 177, [2008] 7 W.W.R. 102 (Alta. C.A.); 1044589 Ontario Inc. (c.o.b. Nantucket Business Centre) v. AB Autorama Ltd., (2009), 2009 ONCA 654, 98 O.R. (3d) 263 (C.A.); Greater Toronto Airports Authority Assn. v. Foster Wheeler Ltd., [2011] O.J. No. 1121 (S.C.J.). [^10]: For an example of a case where the contractual language was not fatal to the claim see Lee-Mar Developments Ltd. v. Monto Industries Ltd. (2000), 2000 CanLII 50978 (ON SC), 18 C.C.L.I. (3d) 224 (Ont. S.C.J.) aff’d (2001), 2001 CanLII 32759 (ON CA), 146 O.A.C. 360 (C.A.). [^11]: R.S.O. 1990, c. S.11. [^12]: 1044589 Ontario Inc., supra note 9 at para. 30; Cummer-Yonge, supra note 6 at p. 230. [^13]: Supra, note 9 at para. 15. [^14]: This passage was quoted in approval in 1044589 Ontario Inc., supra note 10 at para. 30. Section IA 2 (g) of the commercial general liability form excludes damage to property owned or occupied by Designer from coverage. [^15]: T. Eaton Co. v. Smith, supra note 9 at p. 754. [^16]: 1953 CanLII 36 (SCC), [1953] 2 S.C.R. 117 [^17]: Ibid. at p. 120. [^18]: 2010 SCC 4, [2010] 1 S.C.R. 69. [^19]: While Binnie J. wrote in dissent, his approach was expressly adopted by the majority at para. 62. [^20]: Tercon, supra note 18 at paras. 122-123. [^21]: Ibid. at para. 64. [^22]: Cummer-Yonge, supra note 6 at p. 247. [^23]: Ibid. [^24]: The Tenant also relies on paragraphs 8 and 10 of the Lease. Paragraph 8 places responsibility on the Landlord for structural improvements and repairs and paragraph 10 is the covenant for quiet enjoyment. In his affidavit, Mr. Shimoni attributes the flood to a “sprinkler pipe failure”. Ms Sloat’s affidavit refers to a leak that “originated in the sprinkler system in the ceiling over the third floor of 161 Spadina Avenue”. [^25]: Tercon Contractors Ltd., supra note 18 at para. 123. [^26]: That same concern existed in Cummer-Yonge, supra note 6 at p. 252. [^27]: See Tercon Contractors Ltd., supra note 6 at para. 122.