COURT FILE AND PARTIES

COURT FILE NO.: CV-09-38101700A1
DATE: 20121001
SUPERIOR COURT OF JUSTICE - ONTARIO

RE: WILLIAMS-SONOMA INC., WILLIAMS-SONOMA CANADA INC., POTTERY BARN and POTTERY BARN KIDS, Plaintiffs

AND:

OXFORD PROPERTIES GROUP INC., PARAGON PROTECTION LTD. and ELLISDON CORPORATION, Defendants

AND:

YORKDALE SHOPPING CENTRE HOLDINGS INC. and OMERS REALTY MANAGEMENT CORPORATION, Third Parties

BEFORE: Madam Justice Darla A. Wilson

COUNSEL:
Rajesh K. Datt , Counsel for the Plaintiffs

Marcia J. Oliver , Counsel for the Defendant EllisDon Corporation

HEARD: September 17, 2012

ENDORSEMENT

[ 1 ] The Defendant EllisDon Corporation [“EllisDon”] brings this motion for Summary Judgment pursuant to Rules 20 and 26 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 . Counsel provided me with a Statement of Agreed Facts, which was of assistance.

Background

[ 2 ] The Third Party, Yorkdale Shopping Centre Holdings Inc. [“Yorkdale”] is the owner of Yorkdale Mall. OMERS Realty Management Corporation [“OMERS”] is the property manager. EllisDon had a contract with Yorkdale dated September 26, 2006 to perform construction work at the mall in various locations.

[ 3 ] Early in the morning of June 16, 2007, a vandal entered the mall, took the elevator to the third floor, opened the fire hose cabinet and took the cap off the pipe so that water flowed from the hose. Water flooded the third floor and also some of the retail stores beneath, on the second floor.

[ 4 ] The vandal had trespassed into the mall on at least 2 prior occasions and had been banned from the mall in accordance with a trespass notice issued pursuant to the Trespass to Property Act, R.S.O. 1990, T.21 . He was eventually apprehended and charged by the police for his actions on June 16, 2007.

[ 5 ] The third floor was not retail space; rather, it was an area that EllisDon was permitted to use for its offices and some storage. As well, the mall used the area to store Christmas decorations. EllisDon’s office had work stations and a meeting room and it was locked. The rest of the space on the third floor was vacant. There was no written agreement between Yorkdale and EllisDon for the use of the space and EllisDon did not pay for it.

[ 6 ] Access to the third floor was by elevator or a stairwell. The mall controlled the operation of the elevators and, as well, controlled access through the doors.

[ 7 ] At some point, EllisDon was asked by Yorkdale to erect a demising wall with a door. This was done, and the wall did not extend to the ceiling, nor did the door have a lock on it. EllisDon describes the demising wall as more of a partition, to create a barrier so that someone getting off the elevator would realize there was no retail space on the third floor. As well, the wall shielded the construction materials that were stored in the open space outside the EllisDon office.

[ 8 ] After the flood, the procedure changed. The mall implemented a card-key system to control elevator access to the third floor and EllisDon put a lock on the door to the vestibule.

Issues for Determination

1. Does the release and waiver contained at section 8.3 of the Lease preclude recovery against EllisDon or, to put it another way, can EllisDon claim the protection of the release and waiver accorded to the landlord in the lease?

2. If the answer to question 1 is no, did EllisDon breach the standard of care?

3. Regardless, is there a genuine issue requiring a trial?

Position of the Moving Party-Defendant EllisDon

[ 9 ] The moving party submits that there is no genuine issue requiring a trial. The lease requires the tenants at the mall to acquire insurance to cover water damage claims on the premises. The landlord Yorkdale is obligated to maintain similar insurance for its property. The lease provides for a mutual release and waiver between the landlord and tenant for any occurrences which are the subject of insurance coverage. Importantly, the lease also provides a release and waiver for “those for whom the other is in law responsible with respect to occurrences insured against or required to be insured against by the releasing party, whether any such claims arise as a result of the negligence or otherwise of the other or those for whom it is in law responsible.”

[ 10 ] As a result, it is submitted, the waiver of subrogation prevents the tenant from suing the landlord and this waiver extends to the benefit of EllisDon because it is an entity “for whom the landlord is responsible in law.” The landlord, Yorkdale, was not named as a Defendant in this action and this is due to the protection given to Yorkdale as a result of the mutual release provisions in the lease.

[ 11 ] The alternative argument advanced by EllisDon is that there is no evidence that the conduct of EllisDon fell below the standard of care. The damages to the Plaintiff were occasioned as a result of the actions of the trespasser, which conduct was not reasonably foreseeable. In either case, there is no genuine issue requiring a trial.

Position of the Plaintiff-Respondent

[ 12 ] EllisDon had been retained by Yorkdale to do renovations and it was permitted to use vacant space on the third floor for its site office. Yorkdale expected EllisDon to ensure the third floor space that they were using was secure. The mall did not conduct regular security inspections of this area. EllisDon had been advised that vandalism is a common occurrence in the construction industry and they should have taken steps to ensure the third floor was not accessible to random individuals. Notwithstanding this, they erected a wall with a door and failed to install locks on the door. It was through this unlocked door that the vandal gained access to the fire hose and turned it on.

[ 13 ] Counsel for the Plaintiff submitted that the waiver found in the lease is not applicable to the Defendant EllisDon because the landlord is not vicariously liable for the negligence of EllisDon, who was an independent contractor.

[ 14 ] On the issue of foreseeability, counsel relies on the evidence of the expert Jon Groussman who was retained to provide an expert opinion in the area of security management. His report offers the opinion that an act of vandalism in a mall was reasonably foreseeable and EllisDon failed to take proper measures to protect against this risk. Even the Defendant’s own expert, David Hyde, concedes that vandalism is reasonably foreseeable in a shopping centre.

[ 15 ] EllisDon was an occupier of the third floor space and thus, it had a duty to secure the space. They used the area to store their equipment, materials and tools and also used it as a site office for regular meetings.

[ 16 ] The moving party has failed to satisfy the onus of demonstrating that there is no genuine issue requiring a trial.

Analysis

[ 17 ] I will refer only briefly to the amendments to Rule 20 that came into effect in January 2010. The changes enable a motion court judge to weigh the evidence, evaluate credibility and draw reasonable inferences from the evidence. All of these additional powers were for the purpose of enabling a court to determine whether there is a genuine issue requiring a trial.

[ 18 ] In the landmark decision of the Ontario Court of Appeal, Combined Air Mechanical v. Flesch [i] the court stated,

…we emphasize that the purpose of the new rule is to eliminate unnecessary trials, not to eliminate all trials. The guiding consideration is whether the summary judgment process, in the circumstances of a given case, will provide an appropriate means for effecting a fair and just resolution of the dispute before the court. Although both the summary judgment motion and a full trial are processes by which actions may be adjudicated in the “interest of justice”, the procedural fairness of each of these two processes depends on the nature of the issues posed and the evidence led by the parties. In some cases, it is safe to determine the matter on a motion for summary judgment because the motion record is sufficient to ensure that a just result can be achieved without the need for a full trial. In other cases, the record will not be adequate for this purpose, nor can it be made so regardless of the specific tools that are now available to the motion judge. In such cases, a just result can only be achieved through the trial process. This pivotal determination must be made on a case-by-case basis.

[ 19 ] In Combined Air, supra , the court elaborates on the “full appreciation test” that is to be used when deciding Summary Judgment motions,

We find that the passages set out above from Housen , at paras. 14 and 18, such as “total familiarity with the evidence”, “extensive exposure to the evidence”, and “familiarity with the case as a whole”, provide guidance as to when it is appropriate for the motion judge to exercise the powers in rule 20.04(2.1). In deciding if these powers should be used to weed out a claim as having no chance of success or be used to resolve all or part of an action, the motion judge must ask the following question: Can the full appreciation of the evidence and issues that is required to make dispositive findings be achieved by way of summary judgment, or can this full appreciation only be achieved by way of a trial ? [emphasis mine].

We think this “full appreciation test” provides a useful benchmark for deciding whether or not a trial is required in the interest of justice. In cases that call for multiple findings of fact on the basis of conflicting evidence emanating from a number of witnesses and found in a voluminous record, a summary judgment motion cannot serve as an adequate substitute for the trial process. Generally speaking, in those cases, the motion judge simply cannot achieve the full appreciation of the evidence and issues that is required to make dispositive findings. Accordingly, the full appreciation test is not met and the “interest of justice” requires a trial.

In contrast, in document-driven cases with limited testimonial evidence, a motion judge would be able to achieve the full appreciation of the evidence and issues that is required to make dispositive findings. Similarly, the full appreciation test may be met in cases with limited contentious factual issues. The full appreciation test may also be met in cases where the record can be supplemented to the requisite degree at the motion judge’s direction by hearing oral evidence on discrete issues.

We wish to emphasize the very important distinction between “full appreciation” in the sense we intend here, and achieving familiarity with the total body of evidence in the motion record. Simply being knowledgeable about the entire content of the motion record is not the same as fully appreciating the evidence and issues in a way that permits a fair and just adjudication of the dispute. The full appreciation test requires motion judges to do more than simply assess if they are capable of reading and interpreting all of the evidence that has been put before them.

The point we are making is that a motion judge is required to assess whether the attributes of the trial process are necessary to enable him or her to fully appreciate the evidence and the issues posed by the case. In making this determination, the motion judge is to consider, for example, whether he or she can accurately weigh and draw inferences from the evidence without the benefit of the trial narrative, without the ability to hear the witnesses speak in their own words, and without the assistance of counsel as the judge examines the record in chambers.

[ 20 ] It is with the full appreciation of the evidence test that I approach consideration of whether summary judgment ought to be granted in the case at bar.

Issue 1: Does EllisDon fall within the ambit of the protection of the release and waiver accorded to the Landlord at section 8.3 of the Lease and does the release also preclude recovery against EllisDon?

[ 21 ] The Plaintiff is a tenant in the mall. Under the terms of the lease, part 8, both the landlord and the tenant are required to take out insurance against personal and bodily injury, including property damage. Section 8.3 provides for a mutual release between the landlord and tenant and reads as follows:

Each of Landlord and Tenant hereby releases the other and waives all claims against the other and those for whom the other is in law responsible with respect to occurrences insured against or required to be insured against by the releasing party, whether any such claims arise as a result of the negligence or otherwise of the other or those for whom it is in law responsible…

[ 22 ] EllisDon was a contractor hired by the landlord to perform renovations at Yorkdale. In the course of carrying out the work, EllisDon was allowed to use the vacant third floor space at the mall. While counsel for the Plaintiff argued that EllisDon was an independent contractor and the landlord is not vicariously liable for the actions of EllisDon, this submission does not answer the question of whether the protection in the lease ought to be extended to EllisDon. Whether or not there is vicarious liability is not the issue to be determined.

[ 23 ] The reason EllisDon was at Yorkdale and using the third floor with the consent of the landlord is because it had contracted with Yorkdale to perform renovations at the mall. The landlord had delegated the construction work to EllisDon.

[ 24 ] The issue of the protection afforded a landlord arising from provisions of a lease in a subrogated claim was considered by the Court in Harlon Canada v. Lang Investment [ii] , which is factually similar to the case at bar. In Harlon, supra , the Plaintiff tenant sued the Defendant landlord as well as a contractor retained by the landlord to effect roof repairs. The Plaintiff claimed damages arising from leaks through the roof on the commercial premises it leased. The Defendant contractor brought a Summary Judgment motion, arguing that the provisions in the lease which barred any claim against the “landlord or those for whom in law the landlord is responsible” included the contractor and thus, there was no genuine issue for trial and the claim ought to be dismissed. The master agreed and granted the summary judgment motion.

[ 25 ] The Plaintiff appealed. In dismissing the appeal, Justice Mackinnon considered the intentions of the parties and agreed with the Master’s analysis where he stated,

The purpose of these lease terms is to allocate risk between the landlord and the tenant and to require each party to insure its portion of the risk. It is an integral part of the bargain that the allocation of risk and therefore cost will not be disturbed by exercise of subrogation rights… [iii]

[ 26 ] The effect of permitting a tenant to advance a subrogated claim against a party other than the landlord has been the subject of judicial scrutiny. In London Drugs v. Kuehne & Nagel [iv] the Supreme Court of Canada considered the issue of privity of contract in a case where employees were sued in tort. Justice Iacobucci observed,

An application of the doctrine [of privity] so as to prevent a third party from relying on a limitation of liability clause which was intended to benefit him or her frustrates sound commercial practice and justice. It does not respect allocations and assumptions of risk made by the parties to the contract and it ignores the practical realities of insurance coverage. In essence, it permits one party to make a unilateral modification to the contract by circumventing its provisions and the express or implied intention of the parties. In addition, it is inconsistent with the reasonable expectations of all the parties to the transaction, including the third party beneficiary who is made to support the entire burden of liability. The doctrine has also been criticized for creating uncertainty in the law…

[ 27 ] The issue of when a waiver of subrogation clause ought to be extended to a third party was considered in Fraser River v. Can-Dive Services [v] . The Court commented:

In terms of extending the principled approach to establishing a new exception to the doctrine of privity of contract relevant to the circumstances of the appeal, regard must be had to the emphasis in London Drugs that a new exception first and foremost must be dependent upon the intention of the contracting parties. Accordingly, extrapolating from the specific requirements as set out in London Drugs , the determination in general terms is made on the basis of two critical and cumulative factors: (a) Did the parties to the contract intend to extend the benefit in question to the third party seeking to rely on the contractual provision? and (b) Are the activities performed by the third party seeking to rely on the contractual provision the very activities contemplated as coming within the scope of the contract in general, or the provision in particular, again as determined by reference to the intentions of the parties?

[ 28 ] Counsel for the Plaintiff submits that the moving party has failed to satisfy the two part test set out in Harlon, supra . This reference to Harlon is incorrect as Justice Mackinnon referred to the test that the Supreme Court of Canada articulated in Fraser River, supra, and not Harlon . In determining whether the facts of the case at bar meet the two critical factors set out in Fraser River, the intentions of the parties must be examined. Reading the terms of the contract as a whole against the backdrop of the construction contract entered into between EllisDon and Yorkdale, I am persuaded that the parties must have intended the protection arising from the waiver between the landlord and the tenant be extended to others involved in the renovation work ongoing at the mall. The reason behind the inclusion of the release and waiver was to require the landlord and tenant to insure their respective portions of the risk. One of the intentions of having this release and waiver in the contract is the allocation of risk and certainty that cost will not be affected by one party asserting subrogation rights. In order to give effect to this intention, in my opinion, the benefit must be extended to a contractor such as EllisDon.

[ 29 ] With respect to the second part of the test, in my view and contrary to the submissions of counsel for the Plaintiff, the consideration of vicarious liability is irrelevant. Rather, the question to be answered is whether the activities of EllisDon are the very activities contemplated as coming within the scope of the contract, taking into account the intentions of the parties? The answer to this question does not turn on whether or not EllisDon failed to secure the space as submitted by Mr. Datt. Instead, the Court must examine the reason that EllisDon was at Yorkdale and why the vacant space on the third floor was being used by this Defendant.

[ 30 ] Yorkdale hired EllisDon to do extensive renovations to the mall. The description of the work is contained in the contract which is more than 200 pages. Clearly, EllisDon was retained by Yorkdale in furtherance of its obligations as landlord to its tenants. It utilized the third floor space to house its site office and to store equipment and other items necessary for the work it was conducting. To suggest that the landlord was not responsible for the presence of EllisDon at the mall is simply incorrect. The landlord has responsibilities to its tenants and the reason EllisDon was hired to perform work was to satisfy the landlord’s duties.

[ 31 ] Looking at the wording of the lease in the case at bar, there are no conditions limiting the extent to which the subrogation protection is available. It simply reads that there will be a release and waiver for the tenant and landlord and for others “for whom the landlord is responsible in law.” Read plainly, there is nothing that limits the application of this clause. As the Court stated in Fraser River,

When sophisticated commercial parties enter into a contract of insurance which expressly extends the benefit of a waiver of subrogation clause to an ascertainable class of third-party beneficiary, any conditions purporting to limit the extent of the benefit or the terms under which the benefit is to be available must be clearly expressed. The rationale for this requirement is that the obligation to contract for exceptional terms most logically rests with those parties whose intentions do not accord with what I assume to be standard commercial practice. Otherwise, notwithstanding the doctrine of privity of contract, courts will enforce the bargain agreed to by the parties and will not undertake to rewrite the terms of the agreement.

[ 32 ] In my view, the waiver of subrogation extends to the benefit of EllisDon, being an entity for whom the landlord is responsible in law. To permit the Plaintiff to advance a subrogated claim against EllisDon when it cannot advance a claim against the landlord would lead to a result that the subrogation clause is intended to prevent. The parties are sophisticated and obviously directed their minds to the question of allocation of risk between them. The construction contract between Yorkdale and EllisDon was for $28,196,862.00 and took in excess of a year to complete. The language concerning responsibility and the requirement to secure insurance is clear in the lease; there is no need to add additional terms. Further, it makes no commercial sense to find that the subrogation bar does not extend to the contractor EllisDon, who was at the premises to conduct work at the request of the landlord.

[ 33 ] I am satisfied on the record before me that I have a full appreciation of the evidence and issues that are required in order for me to rule on the Summary Judgment motion. I have read the affidavit evidence filed by counsel as well as the Statement of Agreed Facts. There is little dispute about the facts giving rise to the claim. In deciding whether summary judgment ought to be granted, I must determine whether the privity of contract doctrine ought to be relaxed so as to include the contractor in the release and waiver provisions in the leases. For the reasons I have set out in the preceding paragraphs, the waiver of subrogation ought to be extended to EllisDon. I am of the view there is no need for a trial to make this finding.

Conclusion

[ 34 ] The claims of the Plaintiff against the Defendant EllisDon are barred by the provisions of the lease. The action against EllisDon is dismissed. Counsel agreed that costs of the motion ought to be fixed in the amount of $25,000 all inclusive and I order that amount paid by the

Plaintiff to EllisDon within 30 days. Costs of the main action shall be determined by further agreement between the parties, failing which the costs shall be assessed.

D.A. Wilson J.

Date: October 1, 2012

[i] Combined Air Mechanical Services Inc. v. Flesch 2011 ONCA 764

[ii] Harlon Canada Inc. v. Lang Investment Corp . 2010 ONSC 5264 (S.C.J/)

[iii] Harlon Canada Inc. v. Lang Investment Corp . 2008 CarswellOnt 1872

[iv] London Drugs Ltd. v. Kuehne & Nagel International Ltd. 1992 SCC 41

[v] Fraser River Pile & Dredge Ltd. v. Can-Dive Services Ltd . 1999 SCC 654