SUPERIOR COURT OF JUSTICE - ONTARIO

COURT FILE NO.: CV-12-449088
DATE: 20130412

RE: Charles Khabouth, 1263528 Ontario Limited, 1368701 Ontario Inc. and 1284228 Ontario Inc. (Plaintiffs/Moving Parties) and Nuko Investments Limited (Defendant/
Respondent Party)

BEFORE: Justice Beth Allen

COUNSEL:
James Wortzman, for the Plaintiffs
Sean Campbell, for the Defendant

HEARD: March 21, 2013

ENDORSEMENT

THE PARTIES AND PROCEDURE

[1] Charles Khabouth and the corporate plaintiffs (“the Plaintiffs”) brought an action against Nuko Investments Limited (“Nuko”) seeking rectification of a lease amendment containing a clause giving the landlord the right to unilaterally terminate a tenancy on 270 days’ notice. Mr. Khabouth is the principal of the corporate plaintiffs who are tenants of property owned by Mr. Murray Blankstein (“the Property”), the principal of Nuko, the landlord (“the Defendant”). For nearly two decades, Mr. Khabouth has operated entertainment businesses and restaurants from the Property located in downtown Toronto on Queen’s Quay, most notably the Guverment and Koolhaus. He is a sophisticated business man, well-known for over three decades in the commercial real estate and hospitality industries.

[2] The Defendant seeks summary judgment under Rule 20 of the Rules of Civil Procedure on the basis that the claim raises no genuine issue requiring a trial. It is the Defendant’s position that Plaintiffs have failed to disclose a triable issue in relation to their claim for rectification of a lease amendment.

[3] The Plaintiffs submit the court should not make a determination on the issue of unilateral mistake in view of the “full appreciation test” enunciated by the Ontario Court of Appeal in Combined Air. It is their view that the interests of justice can only be satisfied and a full appreciation of the facts can only be achieved with a trial [Combined Air Mechanical Services Inc. v. Flesch, 2011 ONCA 764, [2011] O.J. No. 5431(Ont. C.A.)].

FACTUAL BACKGROUND

[4] Over the years from about 2004, lease agreements between the Plaintiffs and Defendant underwent numerous changes in the form of rent abatements, extensions and deferrals. Those amendments are not at issue on this motion. What is at issue is an agreement entered into on April 20, 2010 to amend the subsisting lease (“the Lease”) (“the Lease Amendment”).

[5] One particular clause in the Lease Amendment is the focus of this dispute. That clause provides, among other things, that the Defendant would extend the term to December 31, 2016, reduce the rent by $15,000 per month and forgive certain deferred rent owing by the Plaintiffs. It further provides that the Plaintiffs would agree to an early termination clause that gives the Defendant the right to terminate the Lease on 270 days’ notice, but not before September 15, 2013 (“the Early Termination Clause”).

[6] The Plaintiffs submit they were not aware of the Early Termination Clause until February 2012 during discussions with prospective purchasers of the Property. The Plaintiffs assert the Early Termination Clause was inserted without their knowledge or consent. They however take no issue with the other terms of the Lease Amendment. The Plaintiffs ask the court to rectify the Lease Amendment by striking out the Early Termination Clause.

[7] The Defendant submits the terms of the Lease Amendment were first discussed between the parties in a phone call on April 9, 2010. Mr. Blankstein states he undertook during that call to send a draft of what the parties agreed to by e-mail to Mr. Khabouth.

[8] On April 12, 2010, the Defendant sent an e-mail to the Plaintiffs attaching a draft of the Lease Amendment, a six-page document, for Mr. Khabouth’s review and comment. That e-mail and the draft were filed as evidence and contain the same terms and language as the final executed Lease Amendment. Mr. Blankstein’s evidence is that the draft reflects what was agreed to over the phone on April 9.

[9] Mr. Khabouth does not dispute that Mr. Blankstein sent the draft but submits he does not recall receiving it, despite the fact Mr. Blankstein indicated in the April 9 phone call that he would send it. There is no evidence Mr. Khabouth followed up to request the draft. He offered no explanation why he did not request one. There is a further curious point. Mr. Khabouth’s office was aware of and had received the draft because minor corrections were made to the rent calculations on the draft that was received by Mr. Blankstein.

[10] On April 20, 2010, Mr. Blankstein and Mr. Khabouth met and signed the Lease Amendment on the signature page and both parties initialled each page. Although the custom of initialling each page of an agreement is meant to signify a party has read and understood the contents of each page, Mr. Khabouth asserts he did not read the agreement.

[11] Mr. Khabouth admitted on cross-examination he took no notes of the April 9 phone call or of the April 20 meeting. Mr. Khabouth stated he only recalls agreeing to amend the Lease by an extension of the term and a reduction of the rent. He did not recall discussing during the April 9 phone call or the April 20 meeting the landlord’s right to a unilateral early termination. On cross-examination, Mr. Khabouth did not have a memory of many details of discussions with Mr. Blankstein or about the terms of the Lease Amendment.

[12] Mr. Khabouth places the obligation on Mr. Blankstein to have ascertained Mr. Khabouth read and understood what he was signing. He says he trusted Mr. Blankstein would not make such a critical alteration to the agreement without alerting him to it. Although Mr. Blankstein does not accept it was his legal obligation to have done this, his evidence is that the Early Termination Clause was fully discussed on April 9 and having received no comment about the draft, he believed Mr. Khabouth agreed it reflected the terms agreed to. Mr. Blankstein also believed Mr. Khabouth read the six-page document before he signed and initialled it on April 20.

[13] The Defendant argues the Early Termination Clause reflects the give and take by parties that is characteristic of a fair contractual agreement. The Plaintiffs would benefit from a sizeable rent reduction and forbearance on rent owed and in exchange the Defendant would be entitled to a right of early termination on 270 days’ notice but not before September 15, 2013. The Plaintiffs have not met the Defendant’s evidence with anything that reflects that the parties agreed to something different than the Lease Amendment. Mr. Khabouth produced no notes, correspondence or e-mails of any discussions between the parties that indicate other terms were discussed.

ISSUES

[14] The main issue in determining whether summary judgment is appropriate is whether the Plaintiffs have satisfied the requirements for the equitable remedy of rectification. There are related credibility issues as between Mr. Khabouth and Mr. Blankstein as to the circumstances surrounding the coming into being of the Lease Amendment.

ANALYSIS

Rectification

[15] Rectification does not allow the court to re-write an agreement freely made between the parties. It allows the court to intercede when there are demonstrated defects in recording a prior agreement between the parties. The Plaintiffs make their claim for rectification on the basis of unilateral mistake saying that the Lease Amendment reflects the intentions of the Defendant but not the Plaintiffs. The Supreme Court of Canada has set some hefty hurdles for a party seeking that remedy and warned that caution must be exercised in allowing rectification. The Plaintiffs must demonstrate:

a) the existence and content of a “definite and ascertainable” prior oral agreement and that the terms agreed to orally were not written down properly;

b) (i) that the defendant either knew or ought to have known of the mistake in reducing the oral terms to writing; and (ii) permitting the defendant to take advantage of the mistake would amount to fraud or the equivalent of fraud; and

c) the “precise form” in which the written instrument can be made to express the prior intention. The Court must not speculate about what may or may not have been agreed to.

[Performance Industries v. Sylvan Lake Golf Club Ltd., 2002 SCC 19, [2002] 1 S.C.R. 678 (S.C.C.)]

[16] The standard of proof required to meet the three criteria has been somewhat in flux in the courts. Sylvan Lake set the standard of “convincing proof”, a rather weightier standard than the regular civil standard of “on the balance of probabilities.” A subsequent decision by the Supreme Court of Canada held the only standard of proof in civil cases is on a balance of probabilities while some lower decisions have held onto “convincing proof” as the standard. [For instance: MTD Products Ltd. v Baldin, [2010] O.J. No. 864, at para. 59, (Ont. S.C.J.); Heim v. Heim, 2011 ONSC 129, [2011] O.J. No. 35, at para 20, (Ont. S.C.J.); and TCR holding Corp. v. Ontario, [2009] O.J. No. 3430, at para. 20, (Ont. S.C.J.); aff’d, 2010 ONCA 233, [2010] O.J. No. 1238 (Ont. C.A.); leave to appeal denied, S.C.C.A. No. 206 (S.C.C.)].

[17] I believe it is fair to say the Plaintiffs’ evidentiary burden on this summary judgment motion will not be satisfied on a flimsy evidentiary record. For the following reasons, I conclude that on any measure the Plaintiffs cannot succeed to establish the requisite proof.

Failure to Prove a Definite, Ascertainable Oral Agreement

[18] As Sylvan Lake established:

Rectification is predicated on the existence of a prior oral contract whose terms are definite and ascertainable. The plaintiff must establish that the terms agreed to orally were not written down properly.

[Sylvan Lake, supra, para. 31]

[19] The extent of Mr. Khabouth’s evidence of a prior oral agreement is his bald statement that he recalls during the April 9 phone call that he and Mr. Blankstein arrived at a clear and specific oral agreement that the Lease would be amended only so as to extend its term and reduce the rent. Mr. Khabouth provided no notes, e-mails, correspondence or any other documentary evidence of the existence of an oral agreement to that effect.

[20] On cross-examination Mr. Khabouth displayed a generally poor memory on such significant details as meetings and phone calls about the Lease, various terms, amendments, rent reductions and even his discussions with Mr. Blankstein on April 20, the day they signed the Lease Amendment. This I find puts into question the plausibility of Mr. Khabouth recalling a specific oral agreement. It seems rather self-serving in the circumstances for Mr. Khabouth to remember only the terms that benefitted him.

[21] Furthermore, the purpose of the draft Lease Amendment Mr. Blankstein undertook to prepare during the April 9 phone call was to provoke further discussion of the terms if Mr. Khabouth had any misgivings that it did reflect what was agreed to. Mr. Khabouth’s denial of receiving the draft, particularly in view of his failure to ask Mr. Blankstein for a copy when he purportedly did not receive it, is all too convenient, and not at all credible in my view. This was an opportunity for Mr. Khabouth to speak to a different understanding of the agreement. This was never done.

[22] I find it also defies credibility that Mr. Khabouth, an experienced and sophisticated businessman, would not read the six-page Lease Amendment on April 20 before he signed it to ascertain it contained the terms he alleges were agreed to on April 9. Mr. Blankstein gave Mr. Khabouth several days to review it before signing. It was reasonable for Mr. Blankstein to assume Mr. Khabouth had no disagreements with it. It is confounding why Mr. Khabouth asserts it was Mr. Blankstein’s obligation to point out the Early Termination Clause. The Ontario Court of Appeal has held the responsibility is with the plaintiff to read a document and satisfy themselves at to its contents:

… in absence of fraud or other improper conduct inducing the plaintiff to enter the contract, the onus must rest with the plaintiff to review the document and satisfy itself of its advantages and disadvantages before signing it. There is no justification for shifting the plaintiff’s responsibility to act with elementary prudence onto the defendant.

… the Plaintiff had all the time needed to read the contract and consider its terms and, admittedly, could have questioned ADT’s representative on any provision about which it may have had doubt. It accordingly must be treated in the same manner as a subscriber who signed the contract with full knowledge of the exclusion provision.

[Fraser Jewellers Ltd. v. Dominion Electric Protection Co., 1997 4452 (ON CA), [1997] O.J. No. 2359, p. 9, (Ont. C.A.); see also Bailey v. Cintas Corp., [2008 ] O.J. No. 1112 , paras. 44 and 46, (Ont. S.C.J.)]

[23] While Mr. Blankstein has no such obligation to Mr. Khabouth, I believe his evidence that he did discuss the clause with Mr. Khabouth.

No Fraud or Equivalent to Fraud

[24] To meet this test, Mr. Khabouth has to establish Mr. Blankstein knew or ought to have known Mr. Khabouth was unaware of the Early Termination Clause at the time he signed it and show that allowing the Defendant to take advantage of Mr. Khabouth’s error would amount to fraud or the equivalent of fraud. The Plaintiffs have to demonstrate it would be unconscionable for the Defendant to have the benefit of the Early Termination Clause [Fraser v. Houston, [2006] B.C.J. No. 290, para. 34, (B.C.C.A.)].

[25] There are several reasons why it is reasonable for the court to accept Mr. Blankstein’s evidence that he was not aware and should not have been aware that Mr. Khabouth did not know of the Early Termination Clause.

[26] As I discussed above, it is not contested that Mr. Blankstein sent Mr. Khabouth a draft of the Lease Amendment for review and comment. Mr. Khabouth had eight days to provide comment before the day the agreement was signed and Mr. Blankstein never received a reply from Mr. Khabouth. The draft agreement contains identical terms to the final copy signed by the parties on April 22.

[27] I find it is reasonable in these circumstances for Mr. Blankstein to think Mr. Khabouth was aware of the Early Termination Clause. Mr. Khabouth has brought no persuasive evidence of why Mr. Blankstein ought to have thought otherwise. Further, there is no evidence that Mr. Khabouth ever told Mr. Blankstein he would not accept an early termination provision.

[28] Also of critical importance to Mr. Khabouth’s failure to establish the basis for a rectification claim is his inability on the facts to prove that fraud or an equivalent to fraud would result from allowing the Early Termination Clause to stand. As the Defendant argues, and I agree, it would actually be inequitable for Mr. Khabouth to enjoy the financial benefit of the waiver of previously deferred rent and the financial gain from reduced rent without an exchange of some advantage flowing to the Defendant. Maintaining the Early Termination Clause, rather than resulting in a fraud or something akin to fraud, actually results in a benefit flowing to the Defendant for what it gave up to the Plaintiffs in rent payments.

Failure to Prove Form of Agreement

[29] The Plaintiffs finally must prove the precise form in which the written instrument can be made to express the prior intentions the parties are alleged to have had in their oral agreement.

[30] The Supreme Court in Sylvan Woods cautioned against resorting to speculation or a hindsight analysis of parties’ unexpressed intentions. It is not appropriate for the court to impose what seems to be a sensible arrangement that the parties might have made but did not [Sylvan Woods, supra, at para. 40].

[31] Mr. Khabouth admitted to not being aware of whether Mr. Blankstein would have refused the substantial rent increase if Mr. Khabouth had disagreed with the inclusion of the Early Termination Clause. In fact, Mr. Blankstein’s evidence was he would not have agreed to the other terms of the Lease Amendment without the Early Termination Clause.

[32] There is absolutely no evidence that could reasonably prove the precise form of a written agreement that could express the intentions the parties allegedly had in their prior oral agreement. There is no way other than through speculation for the court to impose a Lease Amendment absent the Early Termination Clause. The Plaintiffs have failed to prove the precise form of a prior oral agreement.

Conclusion – Is Summary Judgment Appropriate?

[33] On a motion for summary judgment, the moving party has the legal burden to prove there is no genuine issue requiring a trial. The evidentiary burden is then on the responding party to establish evidence of a triable issue [Soper v. Southcott, [1998] O.J. No. 2700 (Ont. C.A.) at para. 14]. The responding party must lead trump or risk losing and demonstrate their case has a real chance of success at trial. The motions court is entitled to assume the evidence contained in the record is all the evidence the parties would rely on if the matter proceeded to trial [1061590 Ontario Limited v. Ontario Jockey Club (1995), 1995 1686 (ON CA), 21 O.R. (3d) 547 at 557 (Ont. C.A.), and Dawson v. Rexcraft Storage and Warehouse Inc. (1998), 1998 4831 (ON CA), 164 D.L.R. (4th) 257, at 265, (Ont. C.A.)]. If the moving party satisfies the court the record discloses no issues of fact required to be tried, they will succeed in obtaining summary judgment [Soper, supra, at para. 14].

[34] Following the 2012 amendments to Rule 20, the Court of Appeal in Combined Air, supra, set guidelines for determining when summary judgment under Rule 20.04(2.1) is appropriate to determine an issue. The Court held:

We find the passages set out in Housen, at paras. 14 and 18, such as “total familiarity with the case as a whole”, “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 the 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?

We think this “full appreciation test” provides a useful benchmark for deciding whether or not a trial is required in the interest of justice. [paras. 50 and 51]

[35] The Court distinguished between the types of records that might provide the basis for summary judgment and those that are not likely to. The court held:

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 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. [para. 39]

[36] I find the record before the court is such that it is sufficient to allow the motions court to arrive at a fair determination without a full trial. There is no need for a mini trial on the limited issue of credibility, as the Plaintiffs suggest. The affidavits, cross-examinations and supporting documentation are sufficient to determine whether the requirements for rectification are met and sufficient to resolve any credibility issues related to the central rectification issue. The Plaintiffs have plainly failed to prove the essential facts that underlie the three criteria set down by the Supreme Court of Canada to establish rectification.

[37] As I concluded above, many of the allegations in Mr. Khabouth’s affidavit that are pertinent to the rectification issue are simply self-serving, unsubstantiated statements. As such they cannot form the basis for genuine issues requiring a trial. Courts have cautioned about the value of such evidence on a summary judgment motion. A self-serving affidavit containing bald allegations or denials will not create triable issues. “The court must be scrupulous in assessing the bona fides of so-called credibility disputes and ensure that any such dispute constitutes a genuine issue for trial” [Iroquois Falls Community Credit Union Ltd. (Liquidator of) v. Co-operators General Insurance Co., 2007 56483 (ON SC), [2007] O.J. No. 4980 162 A.C.W.S. (3d) 924, at paras. 73 and 74 and Goldman v. Devin, 2007 ONCA 301, [2007] O.J. No. 1491, at para. 23, (Ont. C.A.)].

[38] For all the foregoing reasons, I grant summary judgment. The Certificate of Pending Litigation registered against title to the property by the Plaintiffs shall be vacated.

COSTS

[39] Counsel provided costs outlines. This is an appropriate matter for a partial indemnity award. The Defendant seeks total partial indemnity costs of $34,568.63 inclusive of tax and disbursements. The Plaintiffs seek total partial indemnity costs of $62,719.13 inclusive of tax and disbursements. The Defendant was entirely successful and in accordance with the principle that the costs should follow the event, the Defendant is entitled to an award of costs.

[40] The Ontario Court of Appeal set down the principle that the objective of a determination on costs is to fix an amount the unsuccessful party is required to pay that is fair and reasonable rather than an amount reflecting the actual costs of the successful party. The quantum of costs allowed must be fair, within the reasonable expectations of the parties, and in accord with the principles set out by the Court of Appeal in Boucher v. Public Accountants Council for the Province of Ontario 2004 14579 (ON CA), (2004), 71 O.R. (3d) 291 (Ont. C.A.).

[41] Rule 57.01 provides factors for the court’s consideration in deciding quantum, being: the complexity of the proceeding; the importance of the issues; the conduct of any party that tended to unnecessarily lengthen or shorten the proceeding; whether any step in the process was improper or vexatious; and the experience of the parties. The matter on this motion involved the discrete issue of whether the Plaintiffs could establish there was an issue requiring a trial on the rectification of a term of an agreement. This was not a factually or legally complex matter. The proceeding progressed along expeditiously with no unnecessary interruptions or delays. Neither was any step in the process improper or vexatious. The issue was important to both parties as the outcome of this motion determines the legitimacy of a lease agreement of critical financial importance to both parties.

[42] I award costs to the Defendant in the total amount of $20,000 inclusive of taxes and disbursements. This award is fair and reasonable and in accord with the principles set down in Boucher, supra.

ORDER

[43] Order accordingly.

Allen J.

Date: April 12, 2013