1808059 Ontario Limited v. Galaxy Entertainment Inc., 2015 ONSC 1214
COURT FILE NO.: CV-13-5247
DATE: 20150226
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: 1808059 ONTARIO LIMITED and 1837225 ONTARIO LIMITED – and – GALAXY ENTERTAINMENT INC. and KING COLONY HOLDINGS INC.
BEFORE: André J.
COUNSEL: Jessica Rubin, for the Applicants
John Russo, for the Respondent, Galaxy Entertainment Inc.
Patrick Bakos, for the Respondent, King Colony Holdings Inc.
HEARD: January 7, 2015
E N D O R S E M E N T
[1] The applicant, 1808059 Ontario Limited (“180”), seeks an order allowing it to set off any amounts owed to it by the respondent, King Colony Holdings Inc. (“King Colony”), against a debt owed by the co-applicant, 1837225 (“183”), to King Colony on account of a vendor take back loan (“VTB loan”) given by King Colony to 183. The respondents oppose the motion on account of a waiver agreement in which 180 expressly waived all its remedies as they relate to any proposed setoff or debts owed to it by King Colony.
[2] This motion therefore raises the following issues:
Is King Colony liable to 180 for all amounts 180 allowed Galaxy to set off against rent due to an overpayment of realty taxes from its tenancy with a company related to King Colony?
If King Colony is liable to 180, should 180 be allowed to set off the amount owed to it against the debt owed by 183 to King Colony?
FACTS
[3] On or about April 16, 2002, Galaxy Entertainment Inc. (“Galaxy”) and Juno Developments (North Bay) Limited (“Juno Developments”) entered into a lease agreement to occupy a portion of the North Bay Mall located at 300 Lakeshore Drive, North Bay, Ontario. In June 2005, the North Bay Mall was sold to MVO Properties Inc. (“MVO”) which later amalgamated with King Colony.
[4] In November 2009, 180 purchased the commercial property in North Bay Mall from King Colony in which Galaxy was a tenant. The property which was owned at the time by Juno Developments, was subsequently purchased by King Colony. The lease agreement between Galaxy and Juno provided that Galaxy was obligated to pay its portion of property taxes annually. Section 5(b) of the lease agreement indicated that:
The Tenant shall pay all taxes, assessments and levies payable in respect of the Leased Premises (“Realty Taxes”) based on a separate assessment in respect of the Leased Premises, if available, and failing a separate assessment but subject to the following paragraph thereof, the Tenant shall pay its proportionate share of Realty Taxes payable in respect of the Shopping Centre based on the rentable area of the Leased Premises in relation to the rentable area of the Shopping Centre.
[5] The lease also provided that realty taxes would be payable as “Additional Rent” in equal monthly installments based upon reasonable estimates by the Landlord at the commencement of each year of the term. The lease agreement also provided that an adjustment would be made between the parties within thirty (30) days following presentation by the Landlord to the Tenant of the final tax bill for each current year.
[6] Galaxy initially brought a court application for the production of final tax bills with respect to the property for the years 2005 to 2009 to determine whether it had overpaid realty taxes while MVO owned the property.
[7] King Colony finally produced the requested tax bills in November 2013, which revealed that Galaxy had indeed overpaid realty taxes while King Colony owned the property. Galaxy determined that it had overpaid realty taxes in the amount of $270,000 between 2005 and 2009. King Colony has adamantly refused to credit Galaxy for its overpayment of the taxes in question.
[8] When King Colony sold the property to 180 in November 2009, it undertook to re-adjust the statement of adjustments after closing, which it failed to do, and also agreed to indemnify 180 from and against all claims in connection with any leases which occurred prior to November 2, 2009.
[9] King Colony’s principal, Vince DeRosa, signed a statutory declaration dated November 9, 2009, indicating that King Colony was not in default of any of its obligations under the property leases.
[10] Vince DeRosa, on behalf of MVO, provided an Indemnity to 180 on November 2, 2009, against any and all claims made by any tenant of the property regarding overpayment of any rent. The Indemnity provided that:
- In consideration of and notwithstanding the closing of the transaction provided for in the Purchase Agreement, the undersigned (collectively the “Indemnifying Party” hereby covenant and agree, jointly and severally to indemnify and save harmless the Purchaser from and against any and all claims, demands, actions, suits, causes of action, debts, liabilities, costs, expenses, damages or losses, including, without limitation, reasonable legal fees and disbursements, on a full indemnity basis, which may be made or brought against or which may be suffered or incurred by the Indemnified Party by reason of, arising out of or in connection with any of the following:
(a) any claim, demand, action, or suit (collectively “Claim”) by Juno Developments (North Bay) Limited against the Purchaser for or arising out of the overpayment of Additional Rent (as such term is defined in their respective leases) including common area maintenance and property taxes during the years 2003, 2004 and to June 30, 2005, by any tenant of the Property that is a tenant on the date of completion of the above noted Purchase Agreement;
(b) any Claim, made by any tenant of the Property, that is a tenant on the date of completion of the above noted Purchase Agreement, against the Purchaser with respect to an overpayment by any such tenant of Additional Rent (as such term is defined in their respective leases) including common area maintenance and property taxes during the years 2003, 2004 and to June 30, 2005.
[11] Vince DeRosa also signed an undertaking dated November 3, 2009 indicating that:
IN CONSIDERATION of and notwithstanding the closing of the above-noted transaction, the undersigned hereby undertakes to use its reasonable best efforts to obtain within sixty (60) days after the closing of the above referenced transaction estoppel certificates in the form of estoppel certificate annexed hereto as Schedule “A” from tenants who are tenants of leased premises in the Property on the date of closing of the above referenced transaction
[12] Galaxy, King Colony and 180 signed Minutes of Settlement on July 2, 2014, which provided in paragraph 1 that:
The Respondent 1808059 Ontario Limited shall consent to a judgment permitting the Applicant, Galaxy Entertainment Inc., to setoff as against rent (both basic and additional rent) for the Leased Premises (“Rent”) the amount of $217,136.36 (the “Setoff”) as a result of overpayment of realty taxes for the years 2005 and including 2008 by the Applicant to the Respondents.
[13] On June 24, 2011, Mr. Bill Friedman, counsel for Galaxy and King Colony, sent an email to Mr. Ron McCowan, counsel for 180, the subject of which was described as “Estoppel Certificates set off”. It indicated that:
Vince has advised me that effective the closing of this transaction for 77 James Street, Hamilton, all rights and remedies which may be available to your clients, at law, in equity or in contract, relating to the rent rolls provided at closing and/or the failure to obtain estoppel certificates, relating to the sales of 50 Northland Road, 550, 554 and 560 Parkside Drive, Waterloo and 370 Ontario Street, St. Catharines, and 300 Lakeshore Drive, North Bay, Ontario (collectively the “Properties”) including, without limitation, any and all defences and/or right of set off arising therefrom in favour of your clients with respect to any amount owing to my clients under any promissory notes or share pledge agreements, will be waived by your respective clients the purchasers, namely 1837225 Ontario Limited and 1803018 Ontario Limited. Moreover your clients will also waive and release my client from any undertakings given to obtain estoppel certificates from tenants in connection with any of the aforesaid properties.
[14] The email also indicated that: “Enough time has passed since the closing in March 2011 and November 2009 in the case of North Bay for your client to have been satisfied with the accuracy of the rent rolls.”
[15] Ron McCowan provided the following reply to Mr. Friedman on the same date: “I am in agreement”.
LEGAL PRINCIPLES
[16] Mutual debts may be set off against each other, even if they are of a different nature. Section 111(2) of the Courts of Justice Act, R.S.O. 1990, c. C.43.
[17] Equitable setoff is an available remedy where a defendant’s cross-claim is liquidated or unliquidated and whether or not it arises out of the same contract. Agway Metals Inc. v. Dufferin Roofing Ltd., [1991] O.J. No. 9, 46 C.P.C. (2d) 133 (Ont. Gen. Div.) aff’d [1994] O.J. No. 3671, 30 C.P.C. (3d) 295 (Ont. C.A.).
[18] The conditions precedent for the granting of the remedy of an equitable set off are:
a) there must be some equitable basis to resist the plaintiff’s claim;
b) the equitable ground must go to the essence of the plaintiff’s claim; and
c) it would be manifestly unjust to enforce the plaintiff’s claim without taking into consideration the defendant’s claim.
Telford v. Holt, 1987 CanLII 18 (SCC), [1987] 2 S.C.R. 193 [1987] S.C.J. No. 193, (S.C.C.)
[19] For an equitable setoff, there must be a close relationship between the dealings which gave rise to the respective claims. Paul M. Perrell & John W. Morden, The Law of Civil Procedure in Ontario, (Toronto: LexisNexis, 2010), at 311; Teleford v. Holt, supra.
ANALYSIS
Issue No. 1 – Is King Colony liable to 180 for all amounts 180 allowed Galaxy to set off against rent, due to an overpayment of realty taxes from its tenancy with a company related to King Colony?
[20] The answer to this question lies in the interpretation of the waiver expressed in the June 24, 2011 email sent by Mr. Bill Friedman to Mr. Ron McCowan. The respondents submit that this waiver is all-encompassing in that it specifically refers to the North Bay property. They suggest further that the waiver is binding on the applicant given Mr. McCowan’s response to Mr. Friedman’s email that he was in agreement with the proposed waiver.
[21] The applicants maintain that the waiver in question does not apply to any overpayment of rents regarding Galaxy’s rental of the North Bay property. They rely partly on agreements and undertakings made by Mr. DeRosa to pay all realty taxes to the date of closing of the North Bay property and to “re-adjust taxes, if necessary, forthwith on demand”. Additionally, the applicants rely on Mr. Weinberg’s affidavit in which he stated that the waiver did not apply to the Indemnity and Statutory Declaration endorsed by Mr. DeRosa.
[22] However, the waiver on which the respondents rely specifically refers to the North Bay property. It states that all rights and remedies available to the applicants, at law, in equity or in contract, relating to the rent rolls with respect to the North Bay property and others, including “all defences and/or right of set”, will be waived by the applicant companies. The email also indicates that the applicants would waive any release Mr. DeRosa possessed from any undertakings given to obtain estoppel certificates from tenants in connection with any of the named properties, including the North Bay property. Significantly, the email ends with the observation that sufficient time had elapsed “since the closing…in November 2009 in the case of North Bay for your client to have been satisfied with the accuracy of the rent rolls”.
[23] In my view, the email makes direct and specific reference to the North Bay property and the waiver of all the applicants’ rights and remedies, with respect to the rent rolls and estoppel certificates. A plain reading of the email suggests that Mr. Bill Friedman, acting on behalf of his client, Mr. Vince DeRosa, made this request for the waiver of any rights and remedies which the applicants may have had with respect to the rent rolls and estoppel certificates regarding a number of properties including the North Bay property.
[24] One would have thought that if Mr. McCowan had had any concerns regarding the scope of the proposed waiver, he would have expressed those concerns to Mr. Friedman. It would have been a simple matter for Mr. McCowan to have advised Mr. Friedman that the North Bay property would not be included in the proposed waiver. Furthermore, one would have thought that in response to the observation in the email that ample time had elapsed since the November 2009 closing date of the North Bay property for the applicants to have confirmed the accuracy of the rent rolls, Mr. McCowan would have stated unequivocally that any waiver agreement would not include the North Bay property.
[25] However, Mr. McCowan did neither. On the contrary, his succinct response to Mr. Friedman’s email was: “I am in agreement”. He raised no questions about the scope of the suggested waiver neither did he express any concerns that it specifically referred to the North Bay property. His silence on this issue suggests that he consented to the proposed waiver of all his clients rights and remedies relating to the rent rolls and estoppel certificates associated with the North Bay property.
[26] Additionally, Mr. DeRosa testified in an examination on November 12, 2014, that he had discussions with Ron McCowan about a possible waiver and that the email confirmed that the waiver related to all the properties that Mr. McCowan purchased from him, including the North Bay property. He testified that the email was not a partial release, based on the discussions he had had with Mr. McCowan.
[27] In my view, the contents of the email and Mr. McCowan’s response to it constitute a waiver of the applicants’ rights and remedies flowing from the rent rolls and estoppel certificates related to their purchase of the North Bay property. Accordingly, the applicants’ motion is denied.
COSTS
[28] The applicants seek costs in the amount of $28,193 on a partial indemnity basis.
[29] The respondents seek costs of $11,333.44 on a similar basis.
[30] In determining the quantum of costs which can be considered fair and reasonable in this matter, I am mindful of the following factors:
The respondents have been wholly successful on this motion.
While not unduly complex, the matter involved a fair amount of preparation including the conducting of examinations and the preparation of affidavits.
The respondents’ offer to settled dated January 22, 2014, which would have enabled the applicants to recover a significant amount of the $217,136.36 claimed by the applicants.
The year and experience of the respondents’ counsel and the quantum of hours spent in defending the motion.
[31] Based on the above factors, costs in the amount of $10,000 inclusive will be payable by the applicants to the respondents.
DISPOSITION
The applicants’ motion is dismissed.
The applicants will pay the respondents’ costs, fixed in the amount of $10,000 inclusive, within ninety (90) days of the date of this order.
André J.
DATE: February 26, 2015
CITATION: 1808059 Ontario Limited v. Galaxy Entertainment Inc., 2015 ONSC 1214
COURT FILE NO.: CV-13-5247
DATE: 20150226
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: 1808059 ONTARIO LIMITED and 1837225 ONTARIO LIMITED – and – GALAXY ENTERTAINMENT INC. and KING COLONY HOLDINGS INC.
BEFORE: André J.
COUNSEL: Jeffrey W. Kramer, for the Applicants
John Russo, for the Respondent, Galaxy Entertainment Inc.
William Friedman, for the Respondent, King Colony Holdings Inc.
ENDORSEMENT
André J.
DATE: February 26, 2015