ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
CHAIRMAN’S BRANDS CORP.
Applicant
- and -
ASSOCIATION OF DANUBE-SWABIANS
Respondent
Constantine Alexiou,
for the Applicant
Wendy H. Greenspoon-Soer,
for the Respondent
HEARD: November 18, 2014
F.L. Myers J.
REASONS FOR decision
Background
[1] These reasons apply as well to the application between the same parties under Court File No. CV-14-509588.
[2] The parties bring competing applications arising out of an aborted commercial lease transaction. For the reasons that follow, the court finds Chairman’s Brands Corp. (“CBC”) has breached the agreement between the parties and has forfeited its deposit. The process for resolving the issue of the quantum of damages to which the Association of Danube-Swabians (the “Association”) is entitled will be determined by counsel and a judge in Civil Practice Court.
The Facts
[3] The Association is a tenant of premises on Ellesmere Road in Toronto under a lease dated October 1, 1992. On November 13, 2013, the parties entered into an agreement to sublease (the “Sublease”) under which the Association agreed to sublease the bulk of the premises to CBC for 15 years.
[4] CBC paid a deposit of $59,325 to the Association’s realtor CBRE Limited.
[5] The Sublease was conditional upon the approval of CBC as sub-tenant by the head landlord. Under Article 11 of the Sublease, the Association was required to obtain the head landlord’s approval of CBC as a sub-tenant by 5:00 p.m. on November 21, 2013 and give notice to CBC that this condition had been fulfilled or else the Sublease would be null and void and the deposit returned to CBC.
[6] Schedule B to the Sublease provides a creditworthiness condition worded as follows:
Sub-Landlord Condition:
This offer shall be conditional for five (5) business days following acceptance upon the Sub-Landlord satisfying themselves in their sole and arbitrary discretion, as to the following:
- The Sub Landlord being satisfied with the financial creditworthiness of the proposed Sub-Tenant, in its sole and absolute discretion.
In the event that the Sub-Landlord is satisfied with the aforementioned condition within the time periods noted, the Sub-Landlord shall notify the Sub-Tenant in writing, failing which any agreement arising from acceptance of this offer shall be null and void.
Landlord Satisfaction of Tenant Financial Creditworthiness:
The Tenant hereby consents to having the Landlord conduct or cause to be conducted a credit investigation in respect to the Tenant. The Tenant agrees to provide the Landlord within 24 hours following final acceptance of this agreement with information related to its financial creditworthiness as may be reasonably required by the Landlord, including such credit application as may be required by the Landlord, financial statements for the last three years and a reference letter from the Tenant’s bankers.
[7] Article 13 of the Sublease provides that notice on behalf of the Association may be given by its real estate broker. It continues:
Any notice relating hereto or provided for herein shall be in writing. In addition to any provision contained herein and in any Schedule hereto, this offer, any counter-offer, notice of acceptance thereof or any notice to be given or received pursuant to this Agreement or any Schedule hereto (any of them, “Document”) shall be deemed given and received when delivered personally or hand delivered to the Address for Service provided in the Acknowledgment below or, where a facsimile number or email address is provided herein, when transmitted electronically to that facsimile number or email address, respectively, in which case the signature(s) of the party (parties) shall be deemed to be original.
[8] By email sent at 3:46 p.m. on November 21, 2013, the Association’s realtor advised the chair of CBC, Tom Michalopoulos, that the Association waived the creditworthiness condition and that the head landlord approved CBC as sub-tenant.
[9] On November 26, the Mr. Michalopoulos attended the Association’s board meeting. Mr. Berger, a member of the board, recounts the following evidence that was not the subject of cross-examination:
During the board meeting, Michalopoulos conveyed [CBC’s] enthusiasm for the project and explained to the board their intentions to convert the existing banquet hall into an updated facility that caters to a non-denominational customers [sic].
[10] Mr. Berger also provides evidence by way of information and belief that Mr. Michalopoulos attended at the leased premises on November 29, 2013 with an architect, designer and engineer. He was admitted to the premises by the person who had been identified as the contact person for Mr. Michalopoulos at the board meeting two days earlier.
[11] In a supplemental affidavit sworn September 22, 2014, Mr. Michalopoulos attests that “To the best of my recollection, I did not attend at the leased premises on November 29, 2013, with an architect, designer or engineer”. It is not clear if he is denying attending altogether, or if he is just denying attending with all three of the professionals claimed, or if he just does not remember the event.
[12] In the same supplemental affidavit Mr. Michalopoulos attests, “To the best of my recollection, we never provided any financial records to the Landlord relating to the financial creditworthiness of CBC” and, “To the best of my recollection, CBC did not provide any financial information to the Landlord on November 19, 2013.” It is clear, however, that Mr. Michalopoulos and CBC did, in fact, provide a completed credit application in CBRE’s required form and they authorized their bank to provide information to CBRE’s credit consultant. Accordingly, I take Mr. Michalopoulos’s carefully qualified testimony and especially, his repeated use of the phrase “to the best of my recollection” as being general statements concerning the state of his memory rather than specific denials or contradictions of the evidence put forward by the Association.
[13] When approached by the Association’s lawyers in December, 2013 to formalize a form of sublease document in accordance with the terms of the Sublease, CBC took the position that the Sublease was null and void because of noncompliance with the head landlord approval condition and the creditworthiness condition.
[14] In face of the repudiation of the tenancy by CBC, the Association elected to terminate the Sublease and sue for damages on the basis of a present recovery of future losses in accordance with the principles laid out by the Supreme Court of Canada in Highway Properties Ltd. v. Kelly, Douglas and Co. Ltd., [1971] SCR 562, 1971 123 (SCC).
[15] CBC seeks a ruling that the sublease is null and void and that it is entitled to the return of its deposit.
[16] The Association has leased the premises to another tenant and claims that it will suffer losses over the 15 year term of the Sublease of approximately $700,000. It seeks a declaration that the Sublease is a binding contract that was breached by CBC. It also seeks an order entitling it to the deposit which will be applied against any damages to which it ultimately may be entitled.
Analysis
Head Landlord Approval
[17] I did not call upon the Association’s counsel to respond to the issue raised by CBC concerning the sufficiency of notice of the head landlord condition being satisfied. Notice was provided by the Association’s realtor by email within the time stipulated by the Sublease. CBC argued that Article 13 only allowed email to be used when an email address was provided in the body of the Sublease. Otherwise, service was required at the address provided in the Acknowledgment portion of the agreement. Interestingly, only CBCs address was provided in the Acknowledgment. If counsel is correct, that notice is only valid if given as set out in Article 13, then it appears that there is no way provided in the agreement for the Association to be served with any notices. However, I do not read Article 13 as being so limited. As I read its words, Article 13 deems service effective if made in certain ways. It does not, by its words, mandate that notices be given in any specific manner or prevent notice from being given in any specific manner. Nor would such be commercially sensible in the context of the agreement and transaction as a whole.
[18] Furthermore, even if article 13 required notice to be given in non-electric form, sections 4 through 7 of the Electronic Commerce Act, 2000, S.O. 2000, c. 17, authorize email communication in these circumstances. Moreover, in Lanca Contracting Ltd. v. Brant County Board of Education (1986), 1986 2535 (ON CA), 54 O.R. (2d) 414, 1986 CarswellOnt 1030, the majority of the Court of Appeal held:
It has been held that even if written notification was required by the language of the contract documents, communication by any other method no less advantageous to the offeror would be sufficient. This seems to be an eminently reasonable approach to the notice requirement that is fair to both the offeror and offeree.
[19] There was no evidence and no argument that actual notice was not received by the email of November 21, 2013. There is no indication of why an email sent to and received by the chair of CBC would be any less advantageous to it than a letter delivered to the receptionist at CBC’s office. In 2014, it is unlikely that there could be any such argument credibly made.
[20] While arguing that the contract must be complied with to the letter, counsel for CBC also argued that the head landlord’s approval of CBC as a sub-tenant should have been communicated in a document from the head landlord itself. Article 11 of the Sublease is clear and express that the notice of the head landlord’s approval is to be given by the Association. It hardly lies in CBCs mouth to argue that there must be strict performance of the most technical notice provision of the contract but, at the same time, a provision can be implied granting additional, unbargained-for protections to CBC.
[21] Not to be outdone in the impractical interpretation derby, counsel for the Association argued that Article 11 could be interpreted to require that the Association obtain the head landlord’s approval of CBC as sub-tenant by 5:00 p.m. on November 21, 2013, but that the Article does not expressly require the Association to notify CBC of that approval at any particular time. On this theory, as long as the Association received the head landlord’s approval by the specified time, it could keep that fact a secret for years while fulfilling the condition.
[22] I preferred to adopt a commercially reasonable approach which is neither overly technical nor one which would deprive a party of the benefit for which it bargained (i.e. an assurance that the head landlord was satisfied with the Sublease and sub-tenant). The interpretation which I adopt has the additional benefit of being in accordance with the law as set out by the Court of Appeal. Therefore, the notice provided by the Association’s realtor email at 3:46 p.m. on November 21, 2013 satisfied the head landlord approval condition.
Creditworthiness Condition
[23] It is conceded by the Association that it did not waive its condition within five (5) business days of the acceptance of the Sublease. Accordingly, by its terms, the Sublease would appear to have become null and void.
[24] The Association argues, however, that CBC only the provided it with information upon which it could obtain a credit report on November 19, 2013. Mr. Michalopoulos dated the CBRE credit application form November 18, 2013. Armed with the necessary information, the Association acted very quickly. It obtained a credit report, analyzed it, and waived the condition by November 21, 2013. The Sublease placed a specific obligation on CBC to produce financial information within a day of the signing of the agreement on November 13, 2013. As recited above, the relevant portion of the condition provides:
The Tenant agrees to provide the Landlord within 24 hours following final acceptance of this agreement with information related to its financial creditworthiness as may reasonably be required by the Landlord, including such credit application as may be required by the Landlord, financial statements for the last three years and a reference letter from the Tenant’s bankers. [emphasis added][^1]
[25] CBC never provided its financial statements or a reference letter from its banker as required. In fact, CBC’s bank declined to provide a credit reference to CBRE because it was not a financial institution. Ultimately, on November 26, 2013, the Association was able to obtain a credit reference from CBC’s bank through CBRE’s credit consultant with CBC’s assistance. While there is no indication of when CBRE provided its blank credit application form to CBC, CBC did not provide the form back to the Association until on or after November 19, 2013. There is email traffic between and among CBC, the Association, and CBRE concerning finalizing the financial disclosure and details from November 19, 2013 to November 26, 2013.
[26] It seems to me to be highly inequitable and inordinately technical for CBC to try to rely upon the timing of the fulfillment of the creditworthiness condition in light of its own conduct. There was a distinct burden upon it to produce specified information on a timely basis, i.e. within 24 hours of signing on November 13, 2013. It did not do so. When CBC produced only a portion of the information required of it on or by November 19, 2013, the Association acted with alacrity. No one suggested at the time that a deadline had passed that rendered the transaction null and void. Rather, CBC continued to assist the Association to obtain CBCs banker’s reference letter several days later after the condition was already waived.
[27] A party cannot, by its own default, defeat the other party’s rights under an agreement. See: Aldercrest Developments Ltd. v. Hunter, [1970] 2 0.R. 562, 568 (C A). This is not a new principle. For example, in Commissioner of Agricultural Loans v. Irwin, [1940] O.R. 489, 1940 20 (ON CA), McTague J.A. quoted Lord Ellenborough's judgment in Rede v. Farr (1817), 6 M. & S. 121, 124 as follows:
In Co. Litt. 206b it is laid down: 'If a man make a feoffment in fee, upon condition that the feoffee shall re-infeoff him before such a day, and before the day the feoffor disseise the feoffee, and hold him out by force until the day be past, the state of the feoffee is absolute; for the feoffor is the cause wherefore the condition cannot be performed, and therefore shall never take advantage for non- performance thereof. And so it is if A. be bound to B. that J.S. shall marry Jane G. before such a day, and before the day B. marry with Jane, he shall never take advantage of the bond, for that he himself is the mean that the condition could not be performed. And this is regularly true in all cases.
[28] As the old saying goes “You can’t re-infeoff and disseise at the same time”. In other words, a party cannot rely on a condition not being fulfilled when that party caused the other to be unable to fulfill it. CBC cannot rely upon the time limit for the Association to waive its condition when CBC failed to provide the information that it was required to provide within the time in which it was required to do so. The fact that the Association was able to act so quickly once information was provided establishes a causal link between CBC’s failure and the Association’s untimeliness. That is, the Association established that had it been provided with the information that CBC was required to provide when the information was due, it was ready, willing and able to conduct its investigations and provide appropriate notice under the creditworthiness condition within the agreed-upon time.
[29] It is apparent that CBC’s position is an after-thought when, for undisclosed reasons, it determined that it no longer wished to proceed with the sub-tenancy despite its agreement to do so.
Result
[30] An order will, therefore, issue in the terms set out in paragraphs 1(b) and (c) of the Association’s Notice of Application dated August 1, 2014. CBC’s application is dismissed. Counsel are to discuss and agree upon the appropriate process for determining damages and shall attend Civil Practice Court within three (3) weeks to schedule that hearing (be it by way of motion, trial of the issue, reference to a Master or otherwise). Counsel are to communicate and cooperate in the scheduling effort so as to implement an efficient, affordable and proportionate process with the input of the judge at Civil Practice Court.
[31] Counsel for the parties agreed that the successful party should be entitled to costs on a partial indemnity basis of $13,230.96. Accordingly, CBC shall pay the Association costs in that amount.
F.L. Myers, J.
DATE: November 19, 2014
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
CHAIRMAN’S BRANDS CORP.
Applicant
- and -
ASSOCIATION OF DANUBE-SWABIANS
Respondent
REASONS FOR DECISION
F.L. MYERS J.
Released: November 19, 2014
[^1]: It is common ground that the references to the “Landlord” and “Tenant” in this paragraph should be read as “Sub-Landlord” and “Sub-Tenant”.