COURT FILE AND PARTIES

COURT FILE NO.: CV-08-00368394
DATE: 20120926
SUPERIOR COURT OF JUSTICE - ONTARIO

RE: 1001411 ONTARIO LIMITED c.o.b. as CINESPACE STUDIOS MANAGEMENT, Plaintiff

AND:

CITY OF TORONTO ECONOMIC DEVELOPMENT CORPORATION, Defendant

BEFORE: Madam Justice Darla A. Wilson

COUNSEL: Patrick Greco , Counsel for the Plaintiff

Irving Marks & Dom Michaud , Counsel for the Defendant

HEARD: September 21, 2012

ENDORSEMENT

[ 1 ] The Defendant City of Toronto Economic Development Corporation [“TEDCO”] brings this motion to strike certain paragraphs of the Amended Statement of Claim pursuant to Rule 21.01(b) on the grounds that the pleading fails to disclose a reasonable cause of action. The impugned paragraphs relate to the allegations of breach of implied contractual duty of good faith.

[ 2 ] This is the second such motion brought by the Defendant. In September 2009, a motion was brought to strike paragraphs in the Statement of Claim that alleged breach of a stand-alone “common law” duty to act in good faith. Justice Belobaba struck the paragraphs noting, “…the stand-alone duty of good faith allegations in the Statement of Claim have NO CHANCE OF SUCCESS.” He granted leave to amend. The Plaintiff was unsuccessful in its appeal of the order of Belobaba J.

[ 3 ] The Statement of Claim was amended in December 2011. It is unclear why it took more than two years to accomplish this, but this action seems to be proceeding at a very slow pace. In any event, the new pleading alleged in paragraph 1(a) a breach of an implied contractual duty of good faith. Paragraphs 22, 23, 25 and 27 all refer to the implied contractual duty to act honestly and in good faith in the performance of the agreements between the parties.

[ 4 ] This action is a claim for damages arising from an Offer to Lease concerning premises located at 175 Queen’s Quay East. The Offer to Lease commenced in May 1994 and operated for 10 years. The Plaintiff used the premises as a film production centre and studio.

[ 5 ] It is alleged in the Amended Statement of Claim that the parties agreed that the Plaintiff would receive 18 months’ notice if it had to vacate the premises but that it received significantly less than that when it was told to provide vacant possession by February 21, 2007. As a result of this breach of the agreement, it is alleged the Plaintiff sustained damages.

Analysis

[ 6 ] The case law is clear that a pleading should only be struck on a Rule 21.01 motion if it is “plain and obvious” that it fails to disclose a reasonable cause of action: Hunt v. Carey [i] . When considering such a motion, the court is to assume that the facts pleaded are true, unless they are manifestly incapable of being proven: R. v. Imperial Tobacco Canada [ii] . A pleading which fails to disclose a reasonable cause of action is one which has no possibility of success. The court is understandably reluctant at the pleadings stage to strike out a claim unless it is clearly devoid of any prospect of success.

[ 7 ] In the case at bar, it is pleaded there is a breach of contract. The Plaintiff further alleges a breach of an implied duty of good faith; there is no explicit term of the agreement that specifies this. The issue to be decided is whether the pleading containing the implied duty of good faith owed by the Defendant in the execution of the lease agreement is incapable of success.

[ 8 ] The comments of O’Connor A.C.J.O. in Transamerica Life v. ING [iii] are of assistance. He noted, “It is fair to say that Canadian courts have proceeded cautiously in recognizing duties of good faith in the performance and enforcement of contracts. Interestingly, when Canadian courts have referred to duties of good faith, they have done so in circumstances where the result of the case has been determined by the application of other, more established, legal principles…Canadian courts have not developed a comprehensive and principled approach to the implication of duties of good faith in commercial contracts…The implication of a duty of good faith has not gone so far as to create new, unbargained-for, rights and obligations. Nor has it been used to alter the express terms of the contract reached by the parties. Rather, courts have implied a duty of good faith with a view to securing the performance and enforcement of the contract made by the parties, or as it is sometimes put, to ensure that parties do not act in a way that eviscerates or defeats the objectives of the agreement that they have entered into…”

[ 9 ] Justice Perell considered the implied duty of good faith in contract law in Rio Algom Limited v. Canada [iv] and he noted, “…while Canadian courts have been cautious about the scope of a doctrine of good faith in the performance of contracts, the doctrine is developing and it does have a role to play…” In studying the claim as it is framed in the amended Statement of Claim before me, at this stage, I must accept the facts as pleaded and determine whether the claim has any possibility of success.

[ 10 ] The comments of Justice Perell in Rio Algom, supra , are instructive. In finding the Plaintiff’s claim in that action incapable of being sustained, he stated “…whatever the scope of the doctrine of good faith in the law of contract, it does not go so far as to impose new obligations on a contracting party or additional obligations that are inconsistent with the terms of the contract…An implied duty of good faith cannot be used to alter the express terms of the contract…”

[ 11 ] I agree with Justice Perell’s summary of the state of the law of implied duty of good faith in a contract. In the case at bar, the contract between the parties involved the rental of a commercial premises. The amended Statement of Claim alleges that the Defendant was supposed to provide the Plaintiff with 18 months’ notice if it was necessary to vacate the premises, but it provided much less than that. Even accepting that as accurate, this does not, in my opinion, translate into a breach of an implied duty of good faith. To read the contract in that fashion would be to impose an additional obligation on the landlord which was not contained in the agreement between the parties. To do so would be to change and add to the express terms of the contract.

[ 12 ] While counsel for the Defendant argued that the actions of the Defendant by terminating the lease on short notice led to evisceration of the Plaintiff’s rights under the lease and therefore constitutes a violation of the implied duty of good faith, I do not agree. The jurisprudence establishes that there is an implied duty in contractual relationships to carry out a contract in a way that does not defeat or otherwise eviscerate the very purpose and objective of the agreement: Dale v. TREB [v] However, in my view, even accepting the factual allegations in the Amended Statement of Claim as proven, this does not defeat the purpose of the contract, which was to provide rental premises to the Plaintiff to carry on their business.

[ 13 ] The claim cannot be saved as it is not one of the categories of cases referred to in the Rio Algom decision, supra , where a duty of good faith in a commercial contract may be implied: there was no duty to cooperate; there was no exercise of discretionary powers provided for in the contract which requires the discretion be exercised fairly; and the conduct of the Defendant does not have the effect of defeating rights under the agreement to lease.

[ 14 ] The solicitor for the Plaintiff in argument made numerous references to the conduct of the Defendant and its motive in not providing proper notice to vacate the space. In my view, this is an irrelevant consideration on the motion before me. The motivation of TEDCO in giving notice to the Plaintiff to provide vacant possession is of no moment to me in determining whether the claim has any chance of success at law. The Defendant had a right to terminate the agreement on notice.

[ 15 ] As noted by Justice Loukidelis in 962789 Ontario Ltd. Newmarket Plaza [vi] , “…A landlord has no control over the day-to-day operation of a tenant’s business and a lease is a typical commercial bargain between two parties considered to have equal bargaining power. There is no “good faith” duty that requires a landlord to consider the interests of a tenant other than those expressly bargained for in a lease agreement.”

[ 16 ] The Ontario Court of Appeal has confirmed that a landlord may exercise its rights under a contract to terminate a lease without the requirement of good faith: 1397633 Ontario Inc. v. Oxford [vii]

[ 17 ] While I agree that there are situations where the court has found an implied duty of good faith in certain commercial relationships, counsel was unable to refer me to any case where this implied duty has been found in the termination provisions of a commercial lease. If this action proceeds to trial, a judge will have to determine on the evidence whether the Defendant terminated the agreement early, giving rise to the Plaintiff’s claim for damages. This decision will be made without consideration of whether or not this step was taken in good faith because there is no requirement that the Defendant act in good faith in exercising its rights on termination.

Conclusion

[ 18 ] There is no implied duty of good faith on the Defendant in the termination of the lease agreement and notice provisions. Thus, the impugned paragraphs in the Amended Statement of Claim disclose no reasonable cause of action and must be struck. Paragraph 1 of the motion to strike is granted, with leave to amend.

[ 19 ] Counsel agreed that costs ought to be fixed in the sum of $15,000 all inclusive. Thus, the Plaintiff is to pay this amount to the Defendant within 30 days.

D.A. Wilson J.

Date: September 26, 2012

[i] Hunt v. Carey, 1990 90 (SCC) , [1990] 2 S.C.R. 959

[ii] R. V. Imperial Tobacco Canada [2011] 2 S.C.R. 46

[iii] Transamerica Life Canada Inc. v. ING Canada Inc. 2003 9923 (ON CA) , 68 O.R.(3d) 457 (ONCA)

[iv] Rio Algom Limited v. The Attorney General of Canada 2012 ONSC 550 , 2012 CarswellOnt 1200 (OSC)

[v] Dale v. Toronto Real Estate Board 2012 CarswellOnt 896 (OSC)

[vi] 962789 Ontario Ltd. v. Newmarket Plaza Ltd. 2006 CarswellOnt 5086 (OSC)

[vii] 1397633 Ontario Inc. v. Oxford Properties Group Inc., 2003 CarswellOnt 1291 (OCA)