COURT FILE NOS: CV-09-43734, CV-09-43734A, 09-43734B1

DATE: 2012/05/22

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

Michael Cain

Plaintiff

– and –

115032 Ontario Inc. c.o.b. as THE ANTIQUE SHOPPE, NEIL PERRY, BLUEWAVE ENERGY LP., TREVOR BENNETT c.o.b. TREVOR BENNETT OIL TANK INSTALLATION, MARY EILEEN STEPHENSON, R.J. THOMSON & SONS LTD. AND HOULE CHEVRIER ENGINEERING LTD.

Defendants

– and –

2118194 ONTARIO INC. c.o.b. MARLBOROUGH PUB and DONALD FERGUSON c.o.b. FERGUSON HAULAGE & EQUIPMENT RENTALS

Third Parties

– and –

1496369 ONTARIO INC.

Fourth Party

Michael S. Hebert/Cheryl Gerhardt McLuckie, for the Plaintiff/Respondent to motion

Joseph Y. Obagi, for the Defendant/Moving Party in Motion, 115032 Ontario Inc. c.o.b. as THE ANTIQUE SHOPPE

Not in attendance

Not in attendance

HEARD: May 3, 2012

REASONS FOR JUDGMENT

Métivier J.

[1] In this action, the plaintiff seeks damages as against 1150320 Ontario Inc. c.o.b. as The Antique Shoppe (“The Antique Shoppe”) relating solely to damages arising from the escape of oil from the defendants’ above ground storage tank which serviced the commercial premises leased by The Antique Shoppe. The escape of oil from that storage tank is alleged to have occurred on or about December 18, 2007. Other defendants are alleged to have contributed to the damages suffered by the plaintiff.

[2] This motion is brought under Rule 21 of the Rules of Civil Procedure for the determination of a point of law.

[3] The moving party is the defendant The Antique Shoppe. The responding party is the plaintiff Michael Cain. No other parties took part in the motion.

[4] Rule 21 states:

21.01 (1) A party may move before a judge,

(a) for the determination, before trial, of a question of law raised by a pleading in an action where the determination of the question may dispose of all or part of the action, substantially shorten the trial or result in a substantial saving of costs; or

(b) to strike out a pleading on the ground that it discloses no reasonable cause of action or defence,

and the judge may make an order or grant judgment accordingly. R.R.O. 1990, Reg. 194, r. 21.01 (1).

[5] The issue in this motion is whether or not the lease agreement between the owner and the moving party contains a covenant on the part of the lessor to insure against the loss alleged to have been caused by the negligence of the tenant.

[6] The plaintiff, as lessor, and The Antique Shoppe, as lessee, entered into a commercial lease agreement. Under the terms of the agreement, the plaintiff covenants to be responsible for building insurance realty, taxes and garbage removal. The Antique Shoppe covenants to pay all utilities, business taxes, and contents insurance.

[7] The moving party, The Antique Shoppe, seeks to establish that these covenants mean that the parties have allocated the risk of loss as between themselves and that this allocation serves as a waiver of all claims which could otherwise have been maintained against The Antique Shoppe either in contract or negligence arising from the use and operation of the leased premises.

Background

[8] The plaintiff is the owner of lands and premises located at 6588 4th Line Road, North Gower, Ontario (the “property”). The property contained a structure with mixed residential and commercial use. The defendant, The Antique Shoppe was the only commercial tenant.

[9] The commercial tenancy began by way of Indenture pursuant to the Short Form of Leases Act between The Antique Shoppe and Mary Eileen Stephenson, the former owner of the property, dated April 23, 1996 (the “Lease Agreement”). The Lease Agreement was subject to various renewals, generally under the same terms.

[10] The property suffered an oil spill in December of 2007 as a result of damage to The Antique Shoppe’s above ground oil tank and its subsequent filling. In the course of cleaning up the spill from the above ground oil tank, contamination from a former underground fuel storage tank, of which the plaintiff had no knowledge, was also discovered.

[11] Petroleum hydrocarbon contaminant was found in the soils and the groundwater in, and on the property and beneath the slab of the building. The contaminant also migrated to the neighbouring property. To effect the remediation of the Property, it was necessary to demolish the building.

[12] The allegations against The Antique Shoppe include claims in contract and in negligence.

[13] The statement of claim was issued on January 12, 2009. Although the claim has been amended, the allegations in respect of the liability of The Antique Shoppe are virtually the same as in the original claim. The Antique Shoppe delivered its statement of defence and cross‑claim on January 25, 2011. The statement of defence contains no allegation that the risk of loss caused by The Antique Shoppe’s negligence has been allocated to the plaintiff by virtue of the provisions of the Lease Agreement, nor does The Antique Shoppe plead and rely on the provisions of the Lease Agreement. This motion raises those issues for the first time.

[14] The Lease Agreement contains the following terms in respect of insurance:

(Page 4)

Insurance

The Lessee covenants with the said Lessor that his said business to be so carried on in the said building will not be of such a nature as to increase the insurance risk on the said premises or cause the Lessor to pay an increased rate of insurance premiums on the said premises by reason thereof and it is distinctly understood that in case said business so carried on by the Lessee is or becomes of such a nature to increase the insurance risk or cause the lessor and/or other occupants of the said building to pay an increased rate of insurance premiums, that the Lessee will from time to time pay to the Lessor the increased amount of insurance premiums and which the said Lessee and other occupants of the said building have to pay in consequence thereof; provided that the Lessee covenants that he will not carry on or permit to be carried on any business in the said building which may make void or voidable any insurance held by the Lessor or the other occupants of the said building.

In Schedule “A”:

In addition to Basic Rent, the LESSEE shall be responsible for all utilities, business taxes and contents insurance.

The LESSOR shall be responsible for realty taxes, garbage removal, building insurance.

[15] There is no allegation in the pleadings that The Antique Shoppe paid an increased rate of insurance premiums as a result of the nature of the business carried on at the premises, being a retail shop for the sale of antiques.

[16] The Lease Agreement also contains The Antique Shoppe’s covenant to repair (reasonable wear and tear, and damage by fire, lightening and tempest only excepted). There is no exemption in the Lease Agreement for repair of damage caused by an oil spill.

Analysis

[17] The Antique Shoppe submits that an interpretation of its commercial lease should follow the trilogy of cases from the Supreme Court of Canada.

(Agnew-Surpass Show Stores Limited v. Cummer‑Yonge Investments Ltd., 1975 26 (SCC), [1976] 2 S.C.R. 221 (SCC), T. Eaton Co. v. Smith et al., 1977 39 (SCC), [1978] 2 S.C.R. 749 (SCC), Ross Southward Tire v. Pyrotech Products, 1975 25 (SCC), [1976] 2 S.C.R. 35 (SCC))

[18] These cases set out that where a lease contains a covenant by the lessor to insure the premises against specific losses, then the risk of that loss has been allocated to the lessor, regardless if it was caused by the negligence of the tenant, and no claim in negligence may then be brought against the tenant.

[19] That principle is grounded in the fact that the covenant to insure by the landlord is a contractual benefit for the tenant. It is an assumption of risk by the landlord of the risk of loss or damage caused by the peril to be insured against. This is so no matter how the peril is caused, even if by negligence.

[20] In the absence of facts where specific losses are set out in the covenant to insure, ordinarily a tenant is responsible for damages caused by its own negligence.

(T. Eaton Co. v. Smith et al., supra; 1044589 Ontario Inc. carrying on business as Nantucket Business Centre v. AB Autorama Ltd., 2009 ONCA 654

[21] To escape liability, the tenant must show either:

(1) clear wording in the lease of a covenant on the part of the landlord to insure against the specific peril; or;

(2) that the tenant is responsible for the payment of the insurance premiums for coverage for the specific peril, and is therefore entitled to the benefit of the insurance for which it paid.

[22] Examples of the clarity required is seen in the following cases:

Landlord’s Covenants

(1) AND THE LESSOR covenants with the Lessee that he will, throughout the currency of this lease and any extension thereof, hereunder keep the buildings upon the said premises insured against loss by fire in an amount not less than one hundred and ten thousand dollars ($110,000.00).

(T. Eaton Co. v. Smith et al, supra, page 3)

(2) AND the Lessor covenants with the Lessee that he will, throughout the currency of this lease and any extension thereof, hereunder keep the buildings upon the said premises insured against loss by fire in an amount not less than their insurable value.

(T. Eaton Co. v. Smith et al, supra, page 3)

Tenants’ Covenant

(1) (a) To effect and maintain property damage insurance and fire insurance;

(b) To waive any right of subrogation against the landlord (or those for whom the landlord in law is responsible);

(c) That the landlord would not be responsible for any loss or damage to the property belonging to the tenant, its employees or invitees; and

(d) To indemnify the landlord from all losses in respect of the above.

(African Caribbean Grocery Inc. v. 732718 Ontario Inc., 2007 13921 (ON SC), para. 2)

(2) Repair Where Tenant at Fault

Notwithstanding any other terms, covenants and conditions contained in this Lease including, without limitation the Landlord’s obligations under “utilities and maintenance, and Tenant’s obligation in “insurance” if the Land, Building, or any part thereof including, without limitation, any equipment, machinery, facilities or improvements contained therein or made thereto, or the roof or outside walls of the Building or any other structural portions thereof, require repair or become damaged or destroyed through the negligence, carelessness or misuse of the Tenant or through it in any way stopping up or damage the heating apparatus, water pipes, drainage pipes or other equipment or facilities or parts of the Building or Land, the cost of resulting repairs, replacements or alterations, shall be borne by the Tenant, who shall pay the same to the Landlord forthwith upon presentation of an account of such expenses incurred by the Landlord.

Tenant’s Insurance

(1) The Tenant shall, during the entire Term, at its sole cost and expense, take out and keep in full force and effect and in the name of the Tenant, the Landlord and any Mortgagee as their respective interests may appear, the following insurance:

(a) insurance for the tenant’s contents;

(b) public liability and property damage insurance; and

(c) Tenant’s legal liability insurance “for the full replacement costs of the Premises.”

(Lee Mar Developments Ltd. v. Monto Industries Ltd., 2000 50978 (ON SC), [2000] O.J. No. 1332 (SCJ), paras 11‑12, aff’d on appeal 2001 32759 (ON CA), [2001] O.J. No. 987 (ON CA))

[23] Nowhere in the lease in question do we see the clarity and certainty demonstrated in the above examples.

[24] The only wording in the subject lease agreement which may apply places liability squarely on the shoulders of the tenant. The term deals with water and gas damage.

AND IT IS FURTHER DECLARED AND AGREED THAT the Lessor shall not be liable for any damage to any property at any time upon the demised premises arising from gas, steam, water, rain or snow, which may leak into, issue or flow from any part of the said building, or from the gas, water, steam or drainage pipes or plumbing works of the same or from any other place or quarter or for any damage caused by or attributable to the condition or arrangement of any electric or other wires in the said building.

The Lessee shall be liable for any damage done by reason of water being left running from the taps in the demised premises or from gas permitted to escape therein.

Whether “gas” includes petroleum hydro carbon contaminants is an issue for another day.

[25] It is of note that wording found in other such lease cases is similar to the wording in the lease at bar. For example: “owner to pay property taxes and building insurance”, Leung v. Takatsu 1980 3072 (BC CA), [1980] B.C.J. No. 1350 (BCCA), where we see “The lessor shall be responsible for realty taxes, garbage removal, building insurance.” The court held that the words were not intended to be a covenant to insure so as to exculpate the tenant from liability.

[26] Finding no clear indication that the parties intended that the Tenant be absolved from liability for his own negligence, we turn to the second factor which may do so.

[27] While this lease provides for a possibility that the tenant would have to pay for additional insurance premiums, there is no evidence that ever happened. A mere obligation is not sufficient to establish a covenant.

(Shell Oil Company of Canada Ltd. v. The White Motor Company Ltd., 1957 397 (ON SC), [1957] O.W.N. 229 (H.C.J.))

[28] On the facts before me, there is no language or term which can absolve The Antique Shoppe of its ordinary liability for damages caused by its own negligence or liability in contract.

[29] The motion must fail on this basis alone.

Delay

[30] The plaintiff, responding party to this motion, submits there has been inordinate delay in bringing this motion and that this alone is sufficient ground to dismiss the motion.

[31] Rule 21.02 specifically states that “[a] motion under rule 21.01 shall be made promptly and a failure to do so may be taken into account by the court in awarding costs.”

[32] In support of the claim to dismiss this motion for delay, the following submissions are made by the respondent. The claim was issued on January 12, 2009, The Antique Shoppe delivered its statement of defence on January 25, 2011, and now brings this motion, dated February 10, 2012. Examinations for discovery have been largely completed, and have included examination of the plaintiff and all other defendants by counsel for The Antique Shoppe. The Antique Shoppe has been aware of the allegations against it since the commencement of the action. The Antique Shoppe is party to and had knowledge of the Lease Agreement from the start. There is no reasonable explanation for the delay in bringing this motion some three years after the claim was commenced. The delay in bringing this motion should not be tolerated by the court.

[33] The response to this position by the moving party is that delay only becomes a factor to consider at the time of an award of costs.

[34] Further, the moving party alleges this is a complex case and the delay is not unexpected.

[35] In Fleet Street Financial Corp. v. Levinson, 2003 21878 (ON SC), the judge expressed the view that in Rule 21.02, the part of the rule concerning costs “does not limit the generality of the first part” – being the obligation to act promptly.

[36] Earlier, in Colonna v. Bell Canada, (1993) 15 C.P.C. (3d) 65 (Ont Crt – Gen Div) and Mete v. Guardian Insurance Co. of Canada, [1994] O.J. No. 2384 (Ont Crt – Gen Div) the courts refused to hear Rule 21 motions on the basis of a ten month delay (Colonna, supra) and a delay of 18 months after discovery which was only one month before trial (Mete, supra).

[37] Both counsel concede that all discoveries have been held, save for those of The Antique Shoppe itself, which are scheduled for May 24‑25, 2012.

[38] Notwithstanding these persuasive cases, the facts herein include discoveries not yet concluded and thus, impel me to retain the focus on costs as the time when the delay should be addressed.

[39] Therefore, I do not dismiss the motion on the grounds of delay.

Conclusion

[40] Accordingly, the answer to the question: Is the plaintiff prevented from bringing this action against its commercial tenant, the Antique Shoppe, either in negligence and/or contract by the terms of its commercial lease agreement? is: No.

[41] I will receive brief written submissions on costs (maximum of three (3) pages) from the plaintiff within ten (10) days; from the defendant moving party within seven (7) days thereafter and a reply, if required, within five (5) days following.

The Honourable Madam Justice M. Métivier

Released: May 22, 2012

COURT FILE NOS: CV-09-43734, CV-09-43734A, 09-43734B1

DATE: 2012/05/22

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

Michael Cain

Plaintiff

– and –

115032 Ontario Inc. c.o.b. as THE ANTIQUE SHOPPE, NEIL PERRY, BLUEWAVE ENERGY LP., TREVOR BENNETT c.o.b. TREVOR BENNETT OIL TANK INSTALLATION, MARY EILEEN STEPHENSON, R.J. THOMSON & SONS LTD. AND HOULE CHEVRIER ENGINEERING LTD.

Defendants

– and –

2118194 ONTARIO INC. c.o.b. MARLBOROUGH PUB and DONALD FERGUSON c.o.b. FERGUSON HAULAGE & EQUIPMENT RENTALS

Third Parties

– and –

1496369 ONTARIO INC.

Fourth Party

REASONS FOR JUDGMENT

Métivier J.

Released: May 22, 2012